10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended         June 30, 2009                                                                                                                      

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________.

Commission File Number:                                   0-27672                                                                                                              

NORTH CENTRAL BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Iowa	42-1449849
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
825 Central Avenue,  Fort Dodge, Iowa	50501
(Address of principal executive offices)	(Zip Code)

515-576-7531

 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ  No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ¨  No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer  ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨  No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at July 31, 2009
Common Stock, $.01 par value	1,346,448

NORTH CENTRAL BANCSHARES, INC.

INDEX

	Page
Part I.  Financial Information
Item 1.  Financial Statements (Unaudited)	1
Consolidated Condensed Statements of Financial Condition at June 30, 2009 and December 31, 2008	1
Consolidated Condensed Statements of Income for the Three Months and Six Months Ended June 30, 2009 and 2008	2
Consolidated Condensed Statements of Stockholders’ Equity for the Six Months Ended June 30, 2009 and 2008	3
Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008	5
Notes to Consolidated Condensed Financial Statements	7
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.  Quantitative and Qualitative Disclosure About Market Risk	24
Item 4T.  Controls and Procedures	24
Part II. Other Information
Item 1. Legal Proceedings	25
Item 4.   Submission of Matters to a Vote of Security Holders	25
Item 6. Exhibits	25
Signatures	26

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	June 30,		December 31,
	2009		2008
ASSETS
Cash and due from banks:
Interest-bearing	$	2,117,566	$	6,563,494
Noninterest-bearing		6,056,606		9,718,150
Total cash and cash equivalents		8,174,172		16,281,644
Securities available-for-sale		26,930,265		22,837,968
Federal Home Loan Bank stock, at cost		4,739,000		4,692,400
Loans receivable, net		392,138,282		400,786,505
Loans held for sale		1,269,427		730,466
Accrued interest receivable		1,915,037		2,096,784
Foreclosed real estate		1,285,283		1,182,917
Premises and equipment, net		12,068,055		12,113,092
Rental real estate		2,302,772		2,358,688
Title plant		671,704		671,704
Deferred taxes		2,202,560		3,003,565
Bank-owned life insurance		5,417,592		5,293,871
Prepaid expenses and other assets		1,738,067		1,248,232
Total assets	$	460,852,216	$	473,297,836
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits	$	331,224,258	$	350,169,925
Borrowed funds		76,833,539		82,348,915
Advances from borrowers for taxes and insurance		1,814,385		1,923,758
Dividends payable		13,464		13,434
Accrued expenses and other liabilities		3,939,845		3,629,661
Total liabilities		413,825,491		438,085,693
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, authorized 3,000,000 shares; at June 30, 2009 10,200 shares issued and outstanding; at December 31, 2008 none issued and  outstanding)		10,109,541		-
Common stock ($.01 par value, authorized 15,500,000 shares; at June 30, 2009 1,346,448 shares issued and outstanding; at December 31, 2008, 1,343,448 shares issued and outstanding)		13,435		13,421
Additional paid-in capital		17,947,828		17,819,096
Retained earnings, substantially restricted		18,702,631		17,240,779
Accumulated other comprehensive income		253,290		138,847
Total stockholders' equity		47,026,725		35,212,143
Total liabilities and stockholders' equity	$	460,852,216	$	473,297,836

See Notes to Consolidated Condensed Financial Statements

1

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Interest income:
Loans receivable	$	6,000,127		$	6,879,895		$	12,185,344		$	14,051,270
Securities and cash deposits		286,599			274,886			567,177			591,897
		6,286,726			7,154,781			12,752,521			14,643,167
Interest expense:
Deposits		1,786,240			2,743,649			3,855,796			5,835,300
Borrowed funds		888,844			1,150,932			1,887,281			2,352,917
		2,675,084			3,894,581			5,743,077			8,188,217
Net interest income		3,611,642			3,260,200			7,009,444			6,454,950
Provision for loan losses		610,000			160,000			770,000			220,000
Net interest income after provision for loan losses		3,001,642			3,100,200			6,239,444			6,234,950
Noninterest income:
Fees and service charges		1,079,992			1,113,156			2,019,687			2,123,659
Abstract fees		282,739			284,892			499,491			549,149
Mortgage banking income		331,994			150,150			646,737			311,049
Loan prepayment fees		199,512			-			212,166			4,631
Other income		395,506			355,755			766,745			619,403
Total noninterest income		2,289,743			1,903,953			4,144,826			3,607,891
Investment securities (losses), net:
Total other-than-temporary impairment losses		(23,343	)		(1,959,911	)		(23,343	)		(1,959,911	)
Portion of loss recognized in other comprehensive income (loss) before taxes		-			-			-			-
Net impairment losses recognized in earnings		(23,343	)		(1,959,911	)		(23,343	)		(1,959,911	)
Realized securities (losses), net		(9,602	)		-			(19,944	)		-
Total securities (losses), net		(32,945	)		(1,959,911	)		(43,287	)		(1,959,911	)
Noninterest expense:
Compensation and employee benefits		1,844,770			1,860,797			3,712,155			3,834,921
Premises and equipment		442,199			414,567			928,831			856,181
Data processing		199,739			243,402			408,412			486,284
FDIC insurance expense		373,185			21,573			472,404			32,235
Other expenses		1,048,035			1,094,813			2,332,721			2,169,109
Total noninterest expense		3,907,928			3,635,152			7,854,523			7,378,730
Income (loss) before income taxes		1,350,512			(590,910	)		2,486,460			504,200
Provision for income taxes		456,100			365,900			810,400			657,500
Net income/(loss)	$	894,412		$	(956,810	)	$	1,676,060		$	(153,300	)
Preferred stock dividends and accretion of discount	$	131,933		$	-		$	250,884		$	-
Net income/(loss) available to common shareholders	$	762,479		$	(956,810	)	$	1,425,176		$	(153,300	)
Basic earnings (loss) per common share	$	0.57		$	(0.71	)	$	1.06		$	(0.11	)
Diluted earnings (loss) per common share	$	0.57		$	(0.71	)	$	1.06		$	(0.11	)
Dividends declared per common share	$	0.01		$	0.35		$	0.02		$	0.70

See Notes to Consolidated Condensed Financial Statements.

2

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2008

(Unaudited)

	Comprehensive Income (Loss)			Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance, January 1, 2008				$	13,392	$	17,686,444	$	24,483,022		$	(1,206,148	)	$	40,976,710
Comprehensive income:
Net (loss)	$	(153,300	)		-		-		(153,300	)		-			(153,300	)
Other comprehensive income, net of reclassification adjustment and tax		1,079,867			-		-		-			1,079,867			1,079,867
Total comprehensive income	$	926,567
Dividends on common stock					-		-		(939,363	)		-			(939,363	)
Employee stock-based compensation					12		64,870		-			-			64,882
Issuance of 200 shares of common stock					2		4,538		-			-			4,540
Balance, June 30, 2008				$	13,406	$	17,755,852	$	23,390,359		$	(126,281	)	$	41,033,336

See Notes to Consolidated Financial Statements

3

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2009

(Unaudited)

	Comprehensive Income		Preferred Stock			Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance, January 1, 2009			$	-		$	13,421	$	17,819,096	$	17,240,779		$	138,847	$	35,212,143
Comprehensive income:
Net income	$	1,676,060		-			-		-		1,676,060			-		1,676,060
Other comprehensive income, net of reclassification adjustment and tax		114,443		-			-		-		-			114,443		114,443
Total comprehensive income	$	1,790,503
Dividends on preferred stock				-			-		-		(178,500	)		-		(178,500	)
Dividends on common stock				-			-		-		(26,899	)		-		(26,899	)
Employee stock-based compensation				-			14		29,464		-			-		29,478
Issuance of preferred stock through the capital purchase program				10,200,000			-		-		-			-		10,200,000
Discount on preferred stock				(99,268	)		-		99,268		-			-		-
Accretion of discount on preferred stock				8,809			-		-		(8,809	)		-		-
Balance, June 30, 2009			$	10,109,541		$	13,435	$	17,947,828	$	18,702,631		$	253,290	$	47,026,725

See Notes to Consolidated Financial Statements

4

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	1,676,060		$	(153,300	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		770,000			220,000
Depreciation		455,024			435,874
Amortization and accretion		229,595			36,582
Deferred taxes		732,924			(5,219	)
Stock-based compensation		29,478			53,185
Excess tax benefit (expense) related to stock-based compensation		18,550			(2,268	)
(Gain) on sale of foreclosed real estate and loans, net		(643,600	)		(339,099	)
Provision for impairment on investments		23,343			1,959,911
Loss on sale or disposal of equipment and other assets, net		62			-
Write-down of other real estate owned		84,463			267,090
Loss on sale of investments		19,944			-
Proceeds from sales of loans held-for-sale		50,556,224			26,116,575
Originations of loans held-for-sale		(50,448,448	)		(25,249,812	)
Change in assets and liabilities:
Accrued interest receivable		181,747			176,084
Prepaid expenses and other assets		(613,556	)		(49,111	)
Accrued expenses and other liabilities		310,184			394,831
Net cash provided by operating activities		3,381,994			3,861,323
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		21,207,738			36,902,186
Purchase of loans		(14,428,863	)		(18,303,699	)
Purchase of securities available-for-sale		(8,032,172	)		(9,815,998	)
Proceeds from sale of securities available-for-sale		582,000			-
Proceeds from maturities and calls of securities available-for-sale		3,468,824			962,419
Proceeds from redemption of Federal Home Loan Bank stock		-			459,900
Purchase of Federal Home Loan Bank stock		(46,600	)		(157,000	)
Purchase of premises, equipment and rental real estate		(354,133	)		(242,041	)
Proceeds from sale of premises and equipment		-			381
Net proceeds from sale of foreclosed real estate		708,075			1,983,884
Net cash provided by investing activities		3,104,869			11,790,032
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) in deposits		(18,945,667	)		(9,485,150	)
Net (decrease) in advances from borrowers for taxes and insurance		(109,373	)		(107,635	)
Proceeds from other borrowed funds		9,500,000			8,500,000
Payments of other borrowed funds		(15,015,376	)		(14,514,799	)
Proceeds from issuance of common stock, preferred stock and common stock warrant		10,200,000			4,504
Excess tax benefit (expense) related to stock-based compensation		(18,550	)		2,268
Common and preferred dividends paid		(205,369	)		(938,312	)
Net cash (used in) financing activities		(14,594,335	)		(16,539,124	)
Net (decrease) in cash		(8,107,472	)		(887,769	)
CASH AND DUE FROM BANKS
Beginning		16,281,644			12,526,707
Ending	$	8,174,172		$	11,638,938

5

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS-Continued

(Unaudited)

	Six Months Ended June 30,
	2009		2008
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors	$	3,794,173	$	6,140,390
Interest paid on borrowings		1,887,281		2,352,917
Income taxes		107,623		234,411
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Transfers from loans to other real estate owned	$	898,041	$	2,427,100

See Notes to Consolidated Condensed Financial Statements.

6

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1.           BASIS OF PRESENTATION

The consolidated condensed financial statements for the three and six month periods ended June 30, 2009 and 2008 are unaudited.  In the opinion of the management of North Central Bancshares, Inc. (the “Company”), these financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary to present fairly these consolidated financial statements.  The results of operations for the interim periods are not necessarily indicative of results that may be expected for an entire year.  Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the requirements for interim financial statements.  The financial statements and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.

2.           EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.  Income (loss) available to common stockholders is net income (loss) less preferred stock dividends and accretion of discount on preferred stock, treated as preferred stock dividends.  Diluted earnings (loss) per common share reflects the potential dilution that would occur if the Company’s outstanding stock options and warrant were exercised and converted into common stock and restricted stock was vested.  The dilutive effect is computed using the treasury stock method, which assumes all outstanding warrants are exercised.  The incremental shares issuable upon exercise of the warrant, to the extent they would have been dilutive, are included in the denominator of the diluted earnings (loss) per common share calculation.  The calculation of earnings (loss) per common share and diluted earnings (loss) per common share for the three and six months ended June 30, 2009 and 2008 is presented below.

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Basic earnings (loss) per common share:
Net Income (loss)	$	894,412		$	(956,810	)	$	1,676,060		$	(153,300	)
Preferred stock dividends and accretion of discount1		131,933			-			250,884			-
Net income (loss) available to common stockholders	$	762,479		$	(956,810	)	$	1,425,176		$	(153,300	)
Weighted average common shares outstanding – basic		1,342,210			1,339,390			1,341,184			1,338,619
Basic earnings (loss) per common share	$	0.57		$	(0.71	)	$	1.06		$	(0.11	)
Diluted earnings (loss) per common share:
Net income (loss) available to common stockholders	$	762,479		$	(956,810	)	$	1,425,176		$	(153,300	)
Weighted average common shares outstanding - basic		1,342,210			1,339,390			1,341,184			1,338,619
Effect of dilutive securities:
Stock Options		-	3		-	2		-	3		-	2
Restricted Stock		3,118			-	2		3,208			-	2
Common stock warrant4		-			-			-			-
Total diluted average common shares issued and outstanding		1,345,328			1,339,390			1,344,392			1,338,619
Diluted earnings (loss) per common share	$	0.57		$	(0.71	)	$	1.06		$	(0.11	)

1Preferred stock and the common stock warrant were issued on January 9, 2009, and therefore had no effect in 2008.

2For the 2008 periods, options to purchase 75,000 shares of common stock and restricted stock shares of 3,300 were not dilutive due to a net loss.

3For the 2009 periods, the stock options to purchase 67,400 shares of common stock were not dilutive due to the exercise price of all options exceeding the average closing price of the Company’s common stock.

4The average closing price of the Company’s common stock for the three and six months ended June 30, 2009, was $12.25 and $14.20, respectively.  This was less than the $15.43 exercise price of the common stock warrant to purchase 99,157 shares of common stock, therefore, the warrant was not dilutive.

7

3.           DIVIDENDS

On May 15, 2009, the Company paid an aggregate cash dividend of $127,500 on the Fixed Rate Cumulative Perpetual Preferred Stock, Series A issued to the United States Department of the Treasury.  On May 29, 2009, the Company declared a cash dividend on its common stock, payable on July 3, 2009 to stockholders of record as of June 12, 2009.

4.           CURRENT ACCOUNTING DEVELOPMENTS

In April 2009, the Financial Accounting Standards Board (“FASB”) issued Financial Statement of Position FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2/124-2”).  FSP FAS 115-2/124-2 requires entities to separate an other-than temporary impairment (“OTTI”) of a debt security into two components when there are credit-related losses associated with the impaired debt security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.  The amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss).  FSP FAS 115-2/124-2 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 115-1/124-2 effective for the quarter ended June 30, 2009.  The adoption of this FSP did not have a material impact on the Company’s financial position or results of operations.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are Not Orderly” (“FSP FAS 157-4”), if an entity determines that there has been a significant decrease in the volume and level of activity for the asset or the liability in relation to the normal market activity for the asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value.  In addition, if there is evidence that the transaction for the asset or liability is not orderly; the entity shall place little, if any weight on that transaction price as an indicator of fair value.  FSP FAS 157-4 is effective for periods ending after June 15, 2009.  The Company adopted FSP FAS 157-4 effective for the quarter ended June 30, 2009.  The adoption of this FSP did not have a material impact on the Company’s financial position or results of operations.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”).  FSP FAS 107-1 and APB 28-1 require disclosures about fair value of financial instruments in interim and annual financial statements.  FSP FAS 107-1 and APB 28-1 is effective for periods ended June 15, 2009.  The Company adopted FSP FAS 107-1 and APB 28-1 effective for the quarter ending June 30, 2009.  The adoption of this FSP did not have an impact on the Company’s financial position or results of operations.

In May 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No. 165”).  SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  The Company adopted this statement for the quarter ended June 30, 2009.  The Company evaluated events occurring subsequent to June 30, 2009 through August 12, 2009, the date the financial statements are being issued, and other than as set forth in note 10, did not identify any subsequent events requiring disclosure pursuant to the provisions of SFAS No. 165.

In June 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140,” to improve the reporting for the transfer of financial assets resulting from (1) practices that have developed since the issuance of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” that are not consistent with the original intent and key requirements of that Statement and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors.  This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  The Company will review the requirements of FASB No. 166 and comply with its requirements.  The Company does not expect that the adoption of this Statement will have a material impact on the Company’s consolidated financial statements.

8

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments of FASB Interpretation No. 46(R)” to amend certain requirements of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  The Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter.  Earlier application is prohibited.  The Company will review the requirements of FASB No. 167 and comply with its requirements.  The Company does not expect that the adoption of this Statement will have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162.”  Under the Statement, The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive release of the Securities and Exchange Commission (the “SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.  This Statement is effective for financial statement issued for interim and annual periods ending after September 15, 2009.  In the FASB’s view, the issuance of this Statement and the Codification will not change GAAP, except for those nonpublic nongovernmental entities that must now apply the American Institute of Certified Public Accountants Technical Inquiry Service Section 5100, “Revenue Recognition”, paragraphs 38-76.  The Company does not expect that the adoption of the Codification will have a material impact on the Company’s consolidated financial statements.

5.           OPERATING SEGMENTS

An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker.  The Company has determined that it has two reportable segments:  a traditional banking segment and a nonbank segment.  The traditional banking segment consists of the Company’s banking subsidiary, First Federal Savings Bank of Iowa (the “Bank”), and the holding company.  The Bank operates as a federal savings bank providing deposit, loan and other related products to individuals and small businesses, primarily in the communities where their offices are located.  The nonbank segment, which is set forth under the caption “All Others” below, consists of the operations of the subsidiaries under the Bank, and includes real estate abstracting services, insurance and investment services, and ownership of low-income housing tax credit apartment complexes.

Transactions between affiliates, the resulting revenues of which are shown in the inter-segment revenue category, are conducted at market prices that would be paid if the companies were not affiliates.

	Three Months Ended June 30, 2009							Six Months Ended June 30, 2009
	Traditional							Traditional
	Banking		All Others			Total		Banking		All Others			Total
Interest income	$	6,286,726	$	-		$	6,286,726	$	12,752,521	$	-		$	12,752,521
Interest expense		2,675,084		-			2,675,084		5,743,077		-			5,743,077
Net interest income		3,611,642		-			3,611,642		7,009,444		-			7,009,444
Provision for loan losses		610,000		-			610,000		770,000		-			770,000
Net interest income after provision for loan losses		3,001,642		-			3,001,642		6,239,444		-			6,239,444
Noninterest income		1,657,791		599,007			2,256,798		2,982,768		1,118,771			4,101,539
Noninterest expense		3,581,242		326,686			3,907,928		7,192,235		662,288			7,854,523
Income before income taxes		1,078,191		272,321			1,350,512		2,029,977		456,483			2,486,460
Provision for income taxes		412,500		43,600			456,100		752,200		58,200			810,400
Net income	$	665,691	$	228,721		$	894,412	$	1,277,777	$	398,283		$	1,676,060
Inter-segment revenue (expense)	$	247,769	$	(247,769	)	$	-	$	442,963	$	(442,963	)	$	-
Total assets	$	457,621,881	$	3,230,335		$	460,852,216	$	457,621,881	$	3,230,335		$	460,852,216
Total deposits	$	331,224,258	$	-		$	331,224,258	$	331,224,258	$	-		$	331,224,258

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	Three Months Ended June 30, 2008									Six Months Ended June 30, 2008
	Traditional									Traditional
	Banking			All Others			Total			Banking			All Others			Total
Interest income	$	7,154,781		$	-		$	7,154,781		$	14,643,167		$	-		$	14,643,167
Interest expense		3,894,581			-			3,894,581			8,188,217			-			8,188,217
Net interest income		3,260,200			-			3,260,200			6,454,950			-			6,454,950
Provision for loan losses		160,000			-			160,000			220,000			-			220,000
Net interest income after provision for loan losses		3,100,200			-			3,100,200			6,234,950			-			6,234,950
Noninterest income		(605,227	)		549,269			(55,958	)		577,504			1,070,476			1,647,980
Noninterest expense		3,322,988			312,164			3,635,152			6,751,869			626,861			7,378,730
Income/(loss) before income taxes		(828,015	)		237,105			(590,910	)		60,585			443,615			504,200
Provision for income taxes		331,500			34,400			365,900			595,500			62,000			657,500
Net income/(loss)	$	(1,159,515	)	$	202,705		$	(956,810	)	$	(534,915	)	$	381,615		$	(153,300	)
Inter-segment revenue (expense)	$	200,129		$	(200,129	)	$	-		$	394,014		$	(394,014	)	$	-
Total assets	$	491,585,477		$	3,439,338		$	495,024,815		$	491,585,477		$	3,439,338		$	495,024,815
Total deposits	$	356,462,706		$	-		$	356,462,706		$	356,462,706		$	-		$	356,462,706

6. INVESTMENT INFORMATION

Securities available-for-sale as of June 30, 2009 was as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Equity securities:
Mutual fund	$	686,652	$	-	$	-		$	686,652
Debt securities:
State and local obligations	$	2,503,363	$	43,816	$	(39,883	)	$	2,507,296
Mortgage-backed securities		21,764,981		436,757		(20,656	)		22,181,082
U.S. Government agencies		1,571,297		-		(16,062	)		1,555,235
	$	25,839,641	$	480,573	$	(76,601	)	$	26,243,613
	$	26,526,293	$	480,573	$	(76,601	)	$	26,930,265

Securities available-for-sale as of December 31, 2008 was as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Equity securities:
Mutual fund	$	1,229,939	$	-	$	-		$	1,229,939
FHLMC preferred stock		82,000		-		-			82,000
		1,311,939		-		-			1,311,939
Debt securities:
State and local obligations		1,743,349		31,876		(1,781	)		1,772,444
Mortgage-backed securities		19,562,233		355,646		(164,294	)		19,753,585
		21,304,582		387,522		(166,075	)		21,526,029
	$	22,616,521	$	387,522	$	(166,075	)	$	22,837,968

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Gross unrealized losses and estimated fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2009 and December 31, 2008, are summarized as follows:

	June 30, 2009
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Debt securities:
State and local obligations	$	1,564,487	$	(39,883	)	$	-	$	-		$	1,564,487	$	(39,883	)
Mortgage-backed securities		3,655,310		(8,336	)		1,369,182		(12,320	)		5,024,492		(20,656	)
U.S. Government agencies		1,555,235		(16,062	)		-		-			1,555,235		(16,062	)
	$	6,775,032	$	(64,281	)	$	1,369,182	$	(12,320	)	$	8,144,214	$	(76,601	)

	December 31, 2008
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Debt securities:
State and local obligations	$	413,219	$	(1,781	)	$	-	$	-		$	413,219	$	(1,781	)
Mortgage-backed securities		3,443,676		(75,207	)		1,626,411		(89,087	)		5,070,087		(164,294	)
	$	3,856,895	$	(76,988	)	$	1,626,411	$	(89,087	)	$	5,483,306	$	(166,075	)

The unrealized losses for the above investment securities are generally due to changes in interest rates and, as such, are considered to be temporary by the Company.  In addition, the Company has the ability to hold and intent not to sell these investment securities for a period of time sufficient to allow for an anticipated recovery.

The amortized cost and fair value of debt securities as of June 30, 2009 and December 31, 2008 by contractual maturity are shown below.  Certain securities have call features, which allow the issuer to call the security prior to maturity.  Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following maturity summary:

	Debt Securities Available-for-Sale
	June 30, 2009				December 31, 2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	355,000	$	355,708	$	382,669	$	384,225
Due from one to five years		1,581,031		1,548,309		630,000		637,636
Due from five to ten years		1,078,993		1,110,074		729,680		750,583
Due over 10 years		1,059,636		1,048,440		-		-
Mortgage-backed securities		21,764,981		22,181,082		19,562,233		19,753,585
	$	25,839,641	$	26,243,613	$	21,304,582	$	21,526,029

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The following is a summary of securities sold, excluding the sale of Federal Home Loan Bank (“FHLB”) stock:

	June 30, 2009					December 31, 2008
	Net Proceeds from Sale		Gain/(Loss)			Net Proceeds from Sale		Gain/(Loss)
Equity securities:
Mutual funds	$	500,000	$	(19,944	)	$	250,000	$	(41,558	)
FHLMC preferred stock		82,000		-			18,400		(77,300	)
FNMA preferred stock		-		-			19,400		(51,800	)
Other equity securities		-		-			9,850		-
	$	582,000	$	(19,944	)	$	297,650	$	(170,658	)

7. OTHER COMPREHENSIVE INCOME (LOSS)

Under FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” credit-related losses on debt securities with OTTI are recorded in current earnings, while the noncredit-related portion of the reduction in fair value is recorded in other comprehensive income (loss).  The Company’s other component of other comprehensive income (loss) consists of the unrealized holding gains and losses on available for sale investment securities which are considered temporary in nature.

The components of other comprehensive income (loss), presented net of taxes for the six months ended June 30, 2009 and 2008, are as follows:

	Six Months Ended June 30,
	2009			2008
Net income (loss)	$	1,676,060		$	(153,300	)
Other comprehensive income:
Securities for which a portion of an other-than-temporary impairment has been recorded in earnings:
Unrealized holding losses		(43,287	)		(714,037	)
Loss recognized in earnings		43,287			1,959,911
Net unrealized gain on securities with other-than-temporary impairment before tax expense		-			1,245,874
Tax expense		-			(23,266	)
Net unrealized (losses) on securities with other-than-temporary impairment, net of tax in other comprehensive income (loss)		-			1,222,608
Other securities:
Unrealized holding gains (losses) arising during the period		182,524			(227,657	)
Realized net (gains) losses recognized into net income (loss)		-			-
Net unrealized gains (losses) on other securities before tax (expense) benefit		182,524			(227,657	)
Tax (expense) benefit		(68,081	)		84,916
Net unrealized gains (losses) on other securities, net of tax in other comprehensive income (loss)		114,443			(142,741	)
Other comprehensive income	$	1,790,503		$	926,567

8.           FAIR VALUE

The Company adopted SFAS 157 Fair Value Measurements on January 1, 2009 in its entirety. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value. It also establishes a hierarchy for determining fair value measurement. The hierarchy includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

1. Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in markets;

2. Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

3. Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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Fair value measurements for items measured at fair value at June 30, 2009 included:

	Fair Value Measurements at Reporting Date Using
	($ in 000s)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total  June 30, 2009
Description
Securities available-for-sale
State and local obligations	$	-	$	2,507	$	-	$	2,507
Mortgage-backed securities		-		22,181		-		22,181
U.S. Government agencies		-		1,555		-		1,555
Mutual funds		687		-		-		687
Total Securities available-for-sale	$	687	$	26,243	$_ -		$	26,930

A portion of the securities available-for-sale portfolio is an equity security consisting of a mortgage bond mutual fund investment.  The fair values used by the Company are obtained from an independent pricing service, which represent quoted market prices for the identical securities (Level 1 inputs).

Securities available-for-sale (excluding equity securities) portfolio consists of mortgage-backed securities, government bonds, and municipal bond investments whereby the Company obtains fair values from an independent pricing service.  The fair values are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2 inputs).

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets carried on the balance sheet by level with the SFAS No. 157 valuation hierarchy as of June 30, 2009:

	Fair Value Measurements at Reporting Date Using
	($ in 000s)
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Loans	$	-	$	-	$	4,584	$	4,584
Other real estate owned	$	-	$	-	$	1,285	$	1,285

Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value.  Fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy.  Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable.  Such collateral’s fair value is determined based on appraisals by qualified licensed appraisers hired by the Company, and/or management’s expertise and knowledge of the client and client’s business.

SFAS 107, “Disclosure about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.  The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above.  The methodologies for other financial assets and financial liabilities are discussed below:

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Cash and due from banks:  The carrying amount of cash and due from banks represents the fair value.

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Federal Home Loan Bank stock:  The fair value of this untraded stock is estimated at its carrying value because the Company is able to redeem the stock with the Federal Home Loan Bank at par value.

Loans held for sale:  Fair values are based on quoted market prices of similar loans sold on the secondary market.

Loans:  For variable-rate loans that reprice frequently and have experienced no significant change in credit risk, fair values are based on carrying values.  Fair values for all other loans are estimated based on discounted cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Deposits:  Fair values disclosed for demand, NOW, savings and money market savings deposits equal their carrying amounts, which represent the amount payable on demand.  Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits.

Borrowed funds:  The fair value of borrowered funds is estimated based on discounted cash flows using currently available borrowering rates.

Accrued interest receivable and payable:  The fair values of both accrued interest receivable and payable are their carrying amounts.

Commitments to extend credit:  The fair values of commitments to extend credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and creditworthiness of the counterparties.  At June 30, 2009 and December 31, 2008 the carrying amount and fair value of the commitments were not significant.

	June 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
			(nearest 000)				(nearest 000)
Financial assets:
Cash and due from banks	$	8,174,172	$	8,174,000	$	16,281,644	$	16,282,000
Securities		26,930,265		26,930,000		22,837,968		22,838,000
FHLB stock		4,739,000		4,739,000		4,692,400		4,692,000
Loans, net		392,138,282		398,601,000		400,786,505		401,837,000
Loans held for sale		1,269,427		1,269,000		730,466		730,000
Accrued interest receivable		1,915,037		1,915,000		2,096,784		2,097,000
Financial liabilities:
Deposits		331,224,258		334,792,000		350,169,925		354,654,000
Borrowed funds		76,833,539		79,500,000		82,348,915		85,411,000
Accrued interest payable		659,075		659,000		597,448		597,000

9.           RECLASSIFICATIONS

Certain amounts in the prior period financial statements have been reclassified, with no effect on net income or stockholders’ equity, to be consistent with the current period classification.

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10.         SUBSEQUENT EVENTS

Subsequent events have been evaluated through August 12, 2009, the date financial statements are filed with the Securities and Exchange Commission.  Through that date, there were no events requiring disclosure, except with respect to the settlement of the legal proceeding described further below.

On April 13, 2009, Haskell Homes, Inc., Guy M. Haskell and Klyn R. Haskell (collectively, the “Plaintiffs”) filed a complaint in the Fifth Judicial District Court for Washington County, State of Utah against the Bank, as successor in interest to ANB Financial N.A. (“ANB”), in connection with certain loans originally made by ANB to the Plaintiffs for the development of certain real estate located in Washington County, Utah (the “Property”).  The loans are secured by the Property.  Following ANB's failure in May 2008, the Bank became the sole holder of one of the loans.  The complaint included claims for damages in excess of $16 million and recoupment of certain amounts due under the loans as well as a temporary restraining order and/or preliminary injunction.  In connection with the filing of the complaint, the court granted a temporary restraining order to the Plaintiffs.  At a preliminary hearing, the Court dissolved the temporary restraining order because the Plaintiffs had not met the applicable standards.  On May 13, 2009, the Bank filed a notice of removal pursuant to which the case was removed to the U.S. District Court for the District of Utah.  On July 31, 2009, the Bank entered into a settlement agreement with the Plaintiffs pursuant to which the Plaintiffs agreed to dismiss the lawsuit with prejudice.  The settlement agreement provides that the Bank will accept a deed to the Property in lieu of foreclosure in satisfaction of the loans and related obligations.  The settlement agreement also provides that if a portion of the Property is sold to a buyer referred to the Bank by the Plaintiffs within a specified time frame, the Bank will pay a 10% commission to one of the Plaintiffs.  As of August 12, 2009, all actions required to effectuate the settlement were taken by the applicable parties and, following the acceptance of the dismissal documents with the court, this matter will be closed.

Item 2.  Management’s Discussion and Analysis Of Financial Condition and Results Of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements consisting of estimates with respect to the consolidated financial condition, results of operations and business of the Company and its subsidiaries, including the Bank, that are subject to various factors which could cause actual results to differ materially from these estimates, including those set forth in Part I, Item 1A — Risk Factors of the Company’s 2008 Annual Report on Form 10-K.  These factors include changes in general, economic, market, legislative and regulatory conditions, and the development of an interest rate environment that adversely affects the interest rate spread or other income anticipated from the Company’s operations and investments.  The Company’s actual results may differ from the results discussed in the forward-looking statements.  The Company disclaims any obligation to publicly announce future events or developments that may affect the forward-looking financial statements contained herein.

Executive Overview

The purpose of this summary is to provide an overview of the items management focuses on when evaluating the condition of the Company and its success in implementing its business and shareholder value strategies. The Company’s business strategy is to operate the Bank as a well-capitalized, profitable and independent community oriented savings bank.  The Company’s shareholder value strategy has three major themes: (1) enhancing shareholders’ value; (2) making its retail banking franchise more valuable; and (3) efficiently utilizing its capital.

Management believes the following were important factors in the Company’s performance during the quarter ended June 30, 2009:

• The credit crisis affecting the financial markets and residential housing that began in 2007 turned out to be just the flashpoint for a severe and prolonged recession.  While recently published economic data indicates that the current downturn may be easing, the recession continues to affect the Company, the Bank, and the financial industry generally, and it is not clear when or at what speed the recession will end.

• The Company has taken significant steps to reduce the risk of additional loan losses.  During the quarter ended June 30, 2009 the Company increased its provision for loan losses to $610,000 compared to the $160,000 during the quarter ended June 30, 2008.  The Company continues to monitor its loan portfolio with the objective of avoiding defaults or write-downs.  Despite these actions, the possibility of additional losses can not be eliminated, but the Board of Directors and all employees continue to work hard to make the best of these continuing challenging conditions.

15

• The Company continues its focus on earnings through management of net interest margin, successfully increasing the margin to 3.31% as of June 30, 2009 from 2.80% as of June 30, 2008.

• The Bank is required to pay significantly higher FDIC premiums during 2009 due to market developments that have depleted the Deposit Insurance Fund and reduced the ratio of reserves to insured deposits.  On May 22, 2009, the FDIC adopted a final rule imposing a five basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009.  The FDIC may impose an additional special assessment of up to five basis points later in 2009.  Management believes this additional special assessment is probable, but the amount is uncertain.

• The volume of originations of residential mortgages in the second quarter of 2009 doubled compared to the second quarter of 2008.  The successful growth of this line of business is due to the historically low interest rates which are allowing consumers to refinance existing mortgages in order to reduce their monthly costs.

CRITICAL ACCOUNTING POLICIES

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the disclosures included elsewhere in this report, are based on the Company’s consolidated financial statements.  These statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  The financial information contained in these statements is, for the most part, based on approximate measures of the financial effects of transactions and events that have already occurred.  However, the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

The Company’s accounting policies are described in the “Notes to Consolidated Financial Statements” of the Company’s 2008 Annual Report on Form 10-K.  Based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, management has identified its most critical accounting policies to be those related to the allowance for loan losses and asset impairment judgments.

The allowance for loan losses is established through a provision for loan losses charged to expense.  Loans are charged off against the allowance for loan losses when management believes that collectibility of the principal is unlikely.  The Company has policies and procedures for evaluating the overall credit quality of its loan portfolio, including timely identification of potential problem credits.  On a quarterly basis, management reviews the appropriate level for the allowance for loan losses, incorporating a variety of risk considerations, both quantitative and qualitative.  Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values, known information about individual loans and other factors.  Qualitative factors include the general economic environment in the Company’s market area and the expected trend of those economic conditions.  To the extent that actual results differ from forecasts and management’s judgment, the allowance for loan losses may be greater or less than future charge-offs.

Asset impairment judgments include evaluating the decline in fair value of available-for-sale securities below their cost.  Declines in fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the Company’s ability to hold and its intent not to sell its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

FINANCIAL CONDITION

Total assets decreased $12.4 million, or 2.6%, to $460.9 million at June 30, 2009, from $473.3 million at December 31, 2008.  The decrease in assets was primarily due to a decrease in cash and cash equivalents and net loans receivable, offset in part by an increase in securities available-for-sale.  Cash and cash equivalents decreased $8.1 million, or 49.8%, to $8.2 million at June 30, 2009, compared to $16.3 million at December 31, 2008.  The decrease in cash and cash equivalents was primarily due to a decrease in deposits and borrowed funds during the six months ended June 30, 2009.  The increase in securities available-for-sale was primarily due to the purchase of $8.0 million of securities for the six months ended June 30, 2009, offset in part by payments, maturities and sale of securities.

16

Net loans receivable decreased by $8.7 million, or 2.2%, to $392.1 million at June 31, 2009, from $400.8 million at December 31, 2008, primarily due to payments and prepayments of $61.0 million and loan sales of $49.9 million during the six months ended June 30, 2009. These payments, prepayments, and loan sales were offset in part by the origination of $68.4 million of first mortgage loans primarily secured by one-to four-family residences and commercial real estate, the origination of $21.3 million of consumer loans, and the purchase of $14.4 million of multifamily and commercial real estate loans during the six months ended June 30, 2009. The Company sells most fixed-rate residential loans originated with maturities of 15 years or more in the secondary mortgage market in order to reduce interest rate risk.

Deposits decreased $19.0 million, or 5.4%, to $331.2 million at June 30, 2009, from $350.2 million at December 31, 2008, primarily reflecting decreases in certificates of deposits and brokered deposits of $16.0 million and $11.6 million, respectively, offset in part by increases in NOW, money market and savings account balances of $4.5 million, $1.1 million and $3.0 million, respectively.  Borrowings, primarily FHLB advances, decreased $5.5 million, or 6.7%, to $76.8 million at June 30, 2009, from $82.3 million at December 31, 2008. This decrease is due to the normal repayment of borrowings due to calls or maturities.

Total stockholders’ equity increased $11.8 million, or 33.5%, to $47.0 million at June 30, 2009, from $35.2 million at December 31, 2008, primarily due to the sale of the Series A Preferred Stock and the Warrant to the Treasury through the Capital Purchase Program in January and earnings for the six months ended June 30, 2009.

The Office of Thrift Supervision (the “OTS”) requires the Bank to meet minimum tangible, leverage (core) and risk-based capital requirements.  As of June 30, 2009, the Bank exceeded all of its regulatory capital requirements.  The Bank’s required and actual capital levels as of June 30, 2009 and December 31, 2008 were as follows:

													To Be Well-Capitalized
							For Capital						Under Prompt Corrective
	Actual						Adequacy Purposes						Action Provisions
	Amount			Ratio			Amount			Ratio			Amount			Ratio
		(000’s	)					(000’s	)					(000’s	)
As of June 30, 2009:
Total Capital (to risk- weighted assets)	$	46,668			14.0	%	$	26,592			8.0	%	$	33,241			10.0	%
Tier I Capital (to risk- weighted assets)		42,885			12.9			13,296			4.0			19,944			6.0
Tier I (Core) Capital (to adjusted assets)		42,885			9.3			13,804			3.0			23,010			5.0
Tangible Capital (to adjusted assets)		42,885			9.3			6,903			1.5			-			-
As of December 31, 2008:
Total Capital (to risk- weighted assets)	$	37,768			11.2	%	$	27,097			8.0	%	$	33,872			10.0	%
Tier I Capital (to risk- weighted assets)		34,336			10.1			13,549			4.0			20,323			6.0
Tier I (Core) Capital (to adjusted assets)		34,336			7.3			14,187			3.0			23,646			5.0
Tangible Capital (to adjusted assets)		34,336			7.3			7,094			1.5			-			-

17

RESULTS OF OPERATIONS

Net Income (Loss).  Net income increased by $1.85 million to $894,000 for the quarter ended June 30, 2009, compared to a net loss of $(957,000) for the quarter ended June 30, 2008.  The increase in net income was primarily due to a decrease in other-than-temporary impairment on the investment portfolio and an increase in net interest income, offset in part by increases in provision for loan losses and FDIC insurance expense.

Net income increased by $1.83 million to $1.68 million for the six months ended June 30, 2009, compared to a net loss of $(153,000) for the six months ended June 30, 2008.  The increase in net income was primarily due to a decrease in other-than-temporary impairment on the investment portfolio and an increase in net interest income, offset in part by increases in provision for loan losses and FDIC insurance expense.

Net Interest Income.  Net interest income before provision for loan losses increased by $351,000, or 11%, to $3.61 million for the quarter ended June 30, 2009, from $3.26 million for the quarter ended June 30, 2008.  The increase was due to an increase in net interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) and a decrease in the average balance of interest-bearing liabilities, offset in part by a decrease in the average balance of interest-earning assets.  The interest rate spread increased to 3.07% for the quarter ended June 30, 2009, from 2.59% for the quarter ended June 30, 2008.  The increase in interest rate spread reflects a decrease in cost of funds, offset in part by a decrease in the yield on interest-earning assets.

Net interest income before provision for loan losses increased by $554,000 to $7.01 million for the six months ended June 30, 2009, from $6.45 million for the six months ended June 30, 2008.  The increase is due to an increase in net interest rate spread and a decrease in the average balance of interest-bearing liabilities, offset in part by a decrease in the average balance of interest-earning assets.  The interest rate spread increased to 2.94% for the six months ended June 30, 2009, from 2.53% for the six months ended June 30, 2008. The increase in interest rate spread reflects a decrease in cost of funds, offset in part by a decrease in the yield on interest-earning assets.

Interest Income.  Interest income decreased by $868,000, or 12%, to $6.29 million for the quarter ended June 30, 2009, compared to $7.15 million for the quarter ended June 30, 2008.  The decrease in interest income was due to a decrease in the average balance of interest-earning assets and a decrease in the yield on interest-earning assets.  The average balance of interest-earning assets decreased $29.0 million to $435.3 million for the quarter ended June 30, 2009, from $464.4 million for the quarter ended June 30, 2008.  The average yield on interest-earning assets decreased to 5.78% for the quarter ended June 30, 2009, from 6.16% for the quarter ended June 30, 2008, primarily due to a decrease in market rates on first mortgage loans secured by one-to four-family real estate, commercial real estate, and multifamily residences and consumer loans.  The decrease in the average balance of interest-earning assets primarily reflects decreases in the average balances of first mortgage loans secured by one-to four-family real estate and commercial real estate, offset in part by an increase in the average balance of consumer loans, securities available-for-sale, and interest-bearing cash.  The decrease in the average balance of first mortgage loans was derived from payments, prepayments, and sales of loans offset in part by the origination and purchases of first mortgage loans secured by one-to four-family real estate and commercial real estate during the three months ended June 30, 2009.  The increase in the average balance of securities available-for-sale was primarily due to the purchases of securities available-for sale, offset in part by payments, maturities, and sale of securities.

Interest income decreased by $1.89 million, or 13%, to $12.75 million for the six months ended June 30, 2009, compared to $14.64 million for the six months ended June 30, 2008.  The decrease in interest income was due to a decrease in the average balance of interest-earning assets and a decrease in the yield on interest-earning assets.  The average balance of interest-earning assets decreased $29.2 million to $440.5 million for the six months ended June 30, 2009, from $469.7 million for the six months ended June 30, 2008.  The average yield on interest-earning assets decreased to 5.80% for the six months ended June 30, 2009, from 6.24% for the six months ended June 30, 2008, primarily due to a decrease in market rates on first mortgage loans secured by one-to four-family real estate, commercial real estate, and multifamily residences and consumer loans.  The decrease in the average balance of interest-earning assets primarily reflects decreases in the average balances of first mortgage loans secured by one-to four-family real estate and commercial real estate, offset in part by an increase in the average balance of consumer loans, securities available-for-sale, and interest-bearing cash.  The decrease in the average balance of first mortgage loans was derived from payments, prepayments, and sales of loans, offset in part by the origination and purchases of first mortgage loans secured by one-to four-family real estate and commercial real estate during the six months ended June 30, 2009.  The increase in the average balance of securities available-for-sale was primarily due to the purchases of securities available-for sale, offset in part by payments, maturities, and sale of securities.

18

Interest Expense.  Interest expense decreased by $1.22 million, or 31%, to $2.68 million for the quarter ended June 30, 2009, compared to $3.89 million for the quarter ended June 30, 2008.  The decrease in interest expense was due to a decrease in the average balance of interest-bearing liabilities and a decrease in the cost of funds on interest-bearing liabilities. The average balance of interest-bearing liabilities decreased $41.0 million to $396.7 million for the quarter ended June 30, 2009, from $437.7 million for the quarter ended June 30, 2008.  The decrease in the average balance of interest-bearing liabilities primarily reflects a decrease in borrowed funds and certificates of deposit, offset in part by an increase in money market and savings account balances.  The decrease in the average balance of borrowed funds was primarily due to normal repayments of borrowings due to maturities.  The average cost of funds was 2.70% for the quarter ended June 30, 2009, compared to 3.57% for the quarter ended June 30, 2008.

Interest expense decreased by $2.45 million, or 30%, to $5.74 million for the six months ended June 30, 2009, compared to $8.19 million for the six months ended June 30, 2008.  The decrease in interest expense was due to a decrease in the average balance of interest-bearing liabilities and a decrease in the cost of funds on interest-bearing liabilities. The average balance of interest-bearing liabilities decreased $38.7 million to $404.1 million for the six months ended June 30, 2009, from $442.8 million for the six months ended June 30, 2008.  The decrease in the average balance of interest-bearing liabilities primarily reflects a decrease in borrowed funds and certificates of deposit, offset in part by an increase in NOW, money market and savings account balances.  The decrease in the average balance of borrowed funds was primarily due to normal repayments of borrowings due to maturities.  The average cost of funds was 2.87% for the six months ended June 30, 2009, compared to 3.71% for the six months ended June 30, 2008.

The following table sets forth certain information relating to the Company’s average balance sheets and reflects the average yield on assets and average cost of liabilities for the three and six months ended June 30, 2009 and 2008, respectively.

	For the Three Months Ended June 30,
	2009							2008
	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	393,640	$	6,000		6.10	%	$	437,069	$	6,880		6.30	%
Securities available-for-sale		30,497		282		3.70			22,998		255		4.44
Interest-bearing cash		11,210		5		0.16			4,301		20		1.84
Total interest-earning assets		435,347	$	6,287		5.78	%		464,368	$	7,155		6.16	%
Noninterest-earning assets		30,126							36,186
Total assets	$	465,473						$	500,554
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings	$	98,828	$	112		0.45	%	$	96,940	$	223		0.92	%
Savings		28,891		12		0.17			26,173		17		0.27
Certificates of deposit		196,968		1,662		3.38			223,321		2,504		4.50
Borrowed funds		72,041		889		4.95			91,312		1,151		5.06
Total interest-bearing liabilities		396,728	$	2,675		2.70	%		437,746	$	3,895		3.57	%
Noninterest-bearing liabilities		21,924							21,291
Total liabilities		418,652							459,037
Equity		46,821							41,517
Total liabilities and equity	$	465,473						$	500,554
Net interest income			$	3,612						$	3,260
Net interest rate spread						3.07	%						2.59	%
Net interest margin						3.31	%						2.80	%
Ratio of average interest-earning assets to average interest-bearing liabilities						109.73	%						106.08	%

19

	For the Six Months Ended June 30,
	2009							2008
	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	398,807	$	12,185		6.13	%	$	440,348	$	14,051		6.38	%
Securities available-for-sale		29,062		556		3.83			20,544		483		4.70
Interest-bearing cash		12,587		11		0.18			8,815		109		2.48
Total interest-earning assets		440,456	$	12,752		5.80	%		469,707	$	14,643		6.24	%
Noninterest-earning assets		31,625							36,057
Total assets	$	472,081						$	505,764
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings	$	96,192	$	249		0.52	%	$	94,220	$	497		1.06	%
Passbook savings		27,968		28		0.20			25,539		39		0.31
Certificates of deposit		203,391		3,579		3.55			229,725		5,299		4.63
Borrowed funds		76,546		1,887		4.97			93,322		2,353		5.06
Total interest-bearing liabilities		404,097	$	5,743		2.87	%		442,806	$	8,188		3.71	%
Noninterest-bearing liabilities		22,070							21,558
Total liabilities		426,167							464,364
Equity		45,914							41,400
Total liabilities and equity	$	472,081						$	505,764
Net interest income			$	7,009						$	6,455
Net interest rate spread						2.94	%						2.53	%
Net interest margin						3.18	%						2.74	%
Ratio of average interest-earning assets to average interest-bearing liabilities						109.00	%						106.08	%

Provision for Loan Losses.The Company’s provision for loan losses was $610,000 and $160,000 for the quarters ended June 30, 2009 and 2008, respectively, representing a 281% increase.  The increase in provision for loan losses for the quarter ended June 30, 2009 compared to the same period in 2008 was higher as a result of continuing recessionary conditions negatively impacting the construction and real estate development, commercial real estate, and consumer sectors. The Company establishes provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level which is deemed to be appropriate based upon an assessment of prior loss experience, industry standards, past due loans, economic conditions, the volume and type of loans in the Company’s portfolio, and other factors related to the collectibility of the Company’s loan portfolio.  The Company’s total loan portfolio decreased $31.0 million, or 7.2% from June 30, 2008 to June 30, 2009.  This decrease primarily consisted of decreases in loans secured by one-to four-family residential real estate of $21.3 and commercial real estate of $10.6.  Net charge-offs were $451,000 for the six months ended June 30, 2009, compared to $244,000 for the six months ended June 30, 2008.

The allowance for loan loss was $5.7 million at June 30, 2009, compared to $5.4 million at December 31, 2008.  The allowance for loan losses at June 30, 2009 was 1.43% of loans and 52.84% of nonperforming loans, compared to 1.32% of loans and 134.34% of nonperforming loans at December 31, 2008, and 1.38% of loans and 56.58% of nonperforming loans at March 31, 2009. Additions to the allowance for loan loss were due to a deterioration of economic conditions, downgrades in internal risk ratings, reductions in appraised values, and higher levels of charge-offs. Nonperforming loans were $10.78 million or 2.65% of total loans at June 30, 2009, compared to $8.02 million or 2.00% of total loans at December 31, 2008, and $9.59 million or 2.43% of total loans at March 31, 2009. Foreclosed real estate decreased to $1.29 million at June 30, 2009 from $2.77 million at June 30, 2008.

20

The following table summarizes the activity in the allowance for loan losses for the three and six months ended June 30, 2009 and 2008, as well as common ratios related to the allowance for loan losses.

	Three Months Ended June 30,									Six Months Ended June 30,
	2009			2008			Change			2009			2008			Change
Balance at beginning of period	$	5,425		$	3,512		$	1,913		$	5,379		$	3,487		$	1,892
Charge-offs		(342	)		(222	)		(120	)		(459	)		(257	)		(202	)
Recoveries		5			13			(8	)		8			13			(5	)
Net charge-offs		(337	)		(209	)		(128	)		(451	)		(244	)		(207	)
Provision charged to operations		610			160			450			770			220			550
Balance at end of period	$	5,698		$	3,463		$	2,235		$	5,698		$	3,463		$	2,235
Average loans outstanding	$	393,640		$	437,069					$	398,807		$	440,348
Ratio of net charge-offs during the period to average loans outstanding		0.09	%		0.05	%					0.11	%		0.06	%
Ratio of allowance for loan losses to average loans outstanding		1.45	%		0.79	%					1.43	%		0.79	%

Management believes that the allowance for loan losses was adequate as of June 30, 2009.  While management estimates loan losses using the best available information, such as independent appraisals for significant collateral properties, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding problem loans, identification of additional problem loans, and other factors, both within and outside of management’s control.

Noninterest Income.  Total noninterest income increased by $400,000, or 21%, to $2.3 million for the quarter ended June 30, 2009, from $1.9 million for the quarter ended June 30, 2008.  The increase in noninterest income was primarily due to increases in mortgage banking income, loan prepayment fees and other income, offset in part by decreases in fees and service charges.  Mortgage banking income increased $182,000 for the quarter ended June 30, 2009 compared to the same period of 2008 due to an increase in loans originated for the secondary market.  During the quarter ended June 30, 2009, the Company recorded $200,000 in loan prepayments, compared to none for the quarter ended June 30, 2008.  Other income, which primarily includes annuity, securities, insurance sales, and other real estate owned net earnings, increased $40,000 for the quarter ended June 30, 2009 compared to the same period of 2008 primarily due to an increase in income from the sale of annuities and securities and a decrease in other real estate owned expenses.  Fees and service charges decreased $33,000 for the quarter ended June 30, 2009 compared to the same period of 2008 primarily due to a decrease in fees associated with checking accounts, including overdraft fees.

Total noninterest income increased by $500,000, or 14%, to $4.1 million for the six months ended June 30, 2009, compared to $3.6 million for the six months ended June 30, 2008.  The increase in noninterest income was primarily due to increases in mortgage banking income, loan prepayment fees and other income, offset in part by decreases in fees and service charges, and abstract fees.  Mortgage banking income increased $336,000 for the six months ended June 30, 2009 compared to the same period of 2008 due to an increase in loans originated for the secondary market.  During the six months ended June 30, 2009, the Company recorded $212,000 in loan prepayments, compared to $5,000 for the six months ended June 30, 2008.  Other income, which primarily includes annuity, securities, insurance sales, and other real estate owned net earnings, increased $147,000 for the six months ended June 30, 2009 compared to the same period of 2008 primarily due to an increase in income from the sale of annuities and a decrease in other real estate owned expenses.  Fees and service charges decreased $104,000 for the six months ended June 30, 2009 compared to the same period of 2008 primarily due to a decrease in fees associated with checking accounts, including overdraft fees.  Abstract fees decreased $50,000 for the six months ended June 30, 2009 compared to the same period of 2008.

Securities Losses.   Other-than-temporary impairment on investments decreased to $23,000 for the quarter ended June 30, 2009, compared to $1.96 million for the quarter ended June 30, 2008.  Loss on sale of investments increased by $10,000 for the quarter ended June 30, 2009 compared to the same period of 2008 due to the partial sale of a mortgage bond mutual fund investment.  Other-than-temporary impairment on investments decreased to $23,000 for the six months ended June 30, 2009, compared to $1.96 million for the six months ended June 30, 2008.  Loss on sale of investments increased by $20,000 for the six months ended June 30, 2009 compared to the same period of 2008 due to the partial sales of a mortgage bond mutual fund investment.

21

Noninterest Expense.  Total noninterest expense increased by $273,000, or 7.5%, to $3.91 million for the quarter ended June 30, 2009, from $3.64 million for the quarter ended June 30, 2008.  The increase in noninterest expense was primarily due to increases in FDIC insurance expense and premises and equipment, offset in part by decreases in salaries and employee benefits, data processing and other expenses. FDIC insurance expense increased $352,000 for the quarter ended June 30, 2009 compared to the same period of 2008 due to a $210,000 special assessment assessed by the FDIC on June 30, 2009.  The increase in premises and equipment of $28,000 was primarily due to increases in information technology enhancements and property taxes. Salaries and employee benefits expenses decreased as a result of a decrease in the number of full time equivalent employees, and data processing expenses decreased as a result of renewing a core processing contract at reduced rates.  Other expenses decreased $47,000 for the quarter ended June 30, 2009 compared to the same period of 2008 primarily due to a decrease in impairment on other real estate owned.  The Company’s efficiency ratio for the quarter ended June 30, 2009 and 2008 was 66.22% and 70.39%, respectively.  The Company’s ratio of noninterest expense to average assets for the quarters ended June 30, 2009 and 2008 was 3.36% and 2.90%, respectively.

Total noninterest expense increased by $476,000, or 6.5%, to $7.85 million for the six months ended June 30, 2009, from $7.38 million for the six months ended June 30, 2008.  The increase in noninterest expense was primarily due to increases in FDIC insurance expense, premises and equipment and other expenses, offset in part by decreases in salaries and employee benefits and data processing. FDIC insurance expense increased $440,000 for the six months ended June 30, 2009 compared to the same period of 2008 due to a special assessment assessed by the FDIC.  The increase in premises and equipment of $73,000 was primarily due to increases in information technology enhancements and property taxes. Other expenses increased $164,000 for the six months ended June 30, 2009 compared to the same period of 2008 primarily due to an increase in legal fees, audit and tax fees and other professional fees, offset in part by a decrease in impairment on other real estate owned.  Salaries and employee benefits expenses decreased as a result of a decrease in the number of full time equivalent employees, and data processing expenses decreased as a result of renewing a core processing contract at reduced rates.  The Company’s efficiency ratio for the six months ended June 30, 2009 and 2008 was 70.42% and 73.33%, respectively.  The Company’s ratio of noninterest expense to average assets for the six months ended June 30, 2009 and 2008 was 3.33% and 2.92%, respectively.

Income Taxes.  Provision for income taxes increased by $90,000, or 25% to $456,000 for the quarter ended June 30, 2009, compared to $366,000 for the quarter ended June 30, 2008.  The increase in income taxes was primarily due to the increase in the income before income taxes and an increase in the Company’s effective tax rate due to a decrease in tax exempt earnings primarily caused by the elimination of dividends on Fannie Mae and Freddie Mac preferred stock.  During the second quarter 2008, the Company recorded other-than-temporary impairments with minimal tax benefit.

Provision for income taxes increased by $153,000, or 23%, to $810,000 for the six months ended June 30, 2009, compared to $658,000 for the six months ended June 30, 2008.  The increase in income taxes was primarily due to the increase in the income before income taxes and an increase in the Company’s effective tax rate due to a decrease in tax exempt earnings primarily caused by the elimination of dividends on Fannie Mae and Freddie Mac preferred stock.

22

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funds are deposits, amortization and prepayment of loans, borrowings such as FHLB advances, brokered certificates of deposit, maturities of securities and other investments, and earnings and funds provided from operations.  During the first six months of 2009 and 2008, principal payments, prepayments, and proceeds from the sale of loans totaled $117.8 million and $97.6 million, respectively.  The net decrease in deposits during the first six months of 2009 and 2008 totaled $18.9 million and $9.5 million, respectively.  The proceeds from borrowed funds during the six months ended June 30, 2009 and 2008 totaled $9.5 million and $8.5 million.  During the first six months of 2009 and 2008, the proceeds from the maturities, calls and sales of securities totaled $4.1 million and $1.4 million, respectively.  Cash provided from operating activities during the first six months of 2009 and 2008 totaled $3.4 million and $3.9 million, respectively.  The Company’s primary use of funds is to originate and purchase loans, purchase securities available-for-sale, repay borrowed funds and other financing activities.  During the first six months of 2009 and 2008, the Company’s gross purchases and origination of loans totaled $104.1 million and $77.6 million, respectively.  The purchase of securities available-for-sale for the six months ended June 30, 2009 totaled $8.1 million compared to $10.0 million for the six months ended June 30, 2008. The repayment of borrowed funds during the first six months of 2009 and 2008 totaled $15.0 million and $14.5 million, respectively.  OTS regulations require the Company to maintain sufficient liquidity to ensure its safe and sound operation.  For additional information about cash flows from the Company’s operating, financing and investing activities, see the Consolidated Condensed Statements of Cash Flows in the Company’s financial statements included in Part I, Item 1 of this report.

On January 9, 2009, the Company completed the issuance of $10.2 million of our Series A Preferred Stock and the Warrant under the TARP-CPP. Although the Bank would have remained “well capitalized” without these funds, this new equity investment further increases the capacity to support economic activity and growth in each of the communities served by the Bank through responsible lending.

On January 5, 2009, the Company paid a quarterly cash dividend of $0.01 per share of common stock to its shareholders as of the close of business on December 15, 2008.  This dividend payment totaled $13,000.  On February 15, 2009, the Company paid an aggregate cash dividend of $51,000 on the Series A Preferred Stock.  On February 27, 2009, the Company declared a quarterly cash dividend of $0.01 per share, payable on April 3, 2009 to shareholders of record as of the close of business on March 13, 2009.  This dividend payment totaled $13,000.  On May 15, 2009, the Company paid an aggregate cash dividend of $127,500 on the Series A Preferred Stock.  On May 29, 2009, the Company declared a quarterly cash dividend of $0.01 per share, payable on July 3, 2009 to shareholders of record as of the close of business on June 12, 2009.  This dividend payment totaled $13,000.

During the second quarter of 2009, macro-economic conditions and the ongoing recession continued to impact liquidity and credit quality across the financial markets.  While the recession has impacted the local economies in which the Company operates and purchases out-of-state real estate loans, our liquidity position and capital resources remain strong and the Company anticipates that it will have sufficient funds to meet its current funding commitments.

MODIFICATION TO THE EMERGENCY ECONOMIC STABILIZATION ACT OF 2008

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) went into effect and amended certain provisions of EESA, including replacing Section 111 of EESA in its entirety.  The new Section 111 allows a participant in the TARP-CPP, such as the Company, to repay any assistance previously received pursuant to the TARP-CPP without regard to the source of replacement funds or any waiting period subject to consultation with the appropriate Federal banking agency.  In addition, the new Section 111 set forth in ARRA includes standards and requirements regarding executive compensation and corporate governance.  On June 10, 2009, Treasury issued an interim final rule implementing and providing guidance on the executive compensation and corporate governance provisions of EESA, as amended by ARRA. The regulations were published in the Federal Register on June 15, 2009.  In addition, on July 1, 2009, the SEC published a proposed amendment to the proxy rules which would implement the ARRA’s requirement that TARP-CPP participants provide a separate shareholder vote to approve the compensation of the company’s executives.  Together, the Treasury’s interim final rule and the SEC’s proposed rule do (or would, in the case of the SEC’s proposed rule) impose:

· Limits on compensation that exclude incentives for the Company’s Senior Executive Officers to take unnecessary and excessive risks that threaten the value of the Company;

· A provision for the recovery of any bonus, retention award, or incentive compensation paid to the Company’s Senior Executive Officers or to any of the Company’s next twenty most highly compensated employees based on certain financial statements or other criteria that are later found to be materially inaccurate;

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· A prohibition on the Company from making any payments to the Senior Executive Officers or to any of the next five most highly compensated employees for departure from the Company for any reason, except for payments for services performed or benefits accrued;

· A prohibition on the Company’s ability to pay bonuses and certain other compensation to the Company’s Chief Executive Officer, except with respect to certain restricted stock awards or to the extent that a bonus is required by a valid employment contract;

· A prohibition on any compensation plan that would encourage manipulation of the Company’s reported earnings for the purposes of enhancing employee compensation;

· A requirement for the Company’s Chief Executive Officer and Chief Financial Officer to provide certain certifications regarding the foregoing;

· Certain requirements with respect to the Company’s Personnel and Compensation Committee;

· A requirement to adopt a company-wide policy regarding excessive or luxury expenditures;

· A requirement to permit a nonbinding “say on pay” shareholder vote to be included in the Company’s proxy statement with respect to an annual meeting of stockholders; and

· Authorizing the Secretary of the Treasury to review certain compensation paid to the Company’s Senior Executive Officers and the next 20 most highly-compensated employees to determine whether any such payments were inconsistent with the purposes of the foregoing.

In light of the Treasury’s interim final rule and the SEC’s proposed rule, the Company intends to evaluate and amend any employment agreements, benefit plans and other arrangements, and take any other action necessary to ensure compliance with the applicable requirements. 

OFF-BALANCE SHEET ARRANGEMENTS

The Company is a party to financial instruments with off-statement of financial condition risk in the normal course of business to meet the financing needs of its customers.  These financial instruments consist primarily of commitments to extend credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition.  The contract or notional amounts of those instruments reflect the extent of involvement the Company has in a particular class of financial instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for instruments reflected in its statement of financial condition. The Company requires collateral or other security, to support financial instruments with credit risks.

No material changes in the Company’s off-statement of financial condition arrangements occurred during the six months ended June 30, 2009.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

In management’s opinion, there has not been a material change in the Company’s market risk profile during the six months ended June 30, 2009.  Please see the Company’s 2008 Annual Report on Form 10-K for a more detailed discussion of the Company’s interest rate sensitivity analysis.

Item 4T.  Controls and Procedures

Management, including the Company’s President and Chief Executive Officer and the Company’s Chief Financial Officer and Treasurer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.  Based upon that evaluation, the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to the Company’s management, including the Company’s President and Chief Executive Officer and Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure.

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There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the Company’s last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Except for the proceedings described in Note 10 to the Notes to Consolidated Condensed Financial Statements which is incorporated herein by reference, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business.  While no assurance can be given regarding the outcome of these matters, based on information currently available, we believe that the resolution of these matters will not have a material adverse effect on our financial position or results of our future operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, results of operations and cash flows could be materially adversely affected.

Item 4.  Submission of Matters to a Vote of Security Holders

The Company held its 2009 Annual Meeting on May 5, 2009.  All proposals submitted to the stockholders at the meeting were approved.  The details and results of the voting on such proposals was included in the Company’s Form 10-Q for the period ended March 31, 2009 which was filed with the SEC on May 15, 2009.

Item 6.  Exhibits

Exhibit No.	Description	Reference No.
3.1	Articles of Incorporation of North Central Bancshares, Inc.	*
3.2	Bylaws of North Central Bancshares, Inc., as amended	(1)
3.3	Articles of Amendment to the Articles of Incorporation establishing Series A Preferred Stock	(2)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	*
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	*
32.1	Section 1350 Certification of Chief Executive Officer	*
32.2	Section 1350 Certificate of Chief Financial Officer	*

* Filed herewith

(1) Incorporated herein by reference to the Annual Report on Form 10-K filed with the SEC on March 29, 2004.

(2) Incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on January 7, 2009.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		NORTH CENTRAL BANCSHARES, INC.
Date: August 12, 2009	BY:	/s/ David M. Bradley
		David M. Bradley, Chairman, President & CEO
Date: August 12, 2009	BY:	/s/ Kyle C. Cook
		Kyle C. Cook, Chief Financial Officer and Treasurer

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EX-3.1

ARTICLES OF INCORPORATION

OF

NORTH CENTRAL BANCSHARES, INC.

THE UNDERSIGNED, for the purpose of forming a corporation pursuant to Section 201 of the Iowa Business Corporation Act, does hereby file these Articles of Incorporation of North Central Bancshares, Inc.

ARTICLE I

NAME

The name of the corporation is North Central Bancshares, Inc. (the “Corporation”).

ARTICLE II

REGISTERED OFFICE AND AGENT

The address of the registered office of the Corporation in the State of Iowa is 825 Central Avenue, Fort Dodge, Iowa 50501-1237.  The name of its registered agent at such address is David M. Bradley.

ARTICLE III

PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Iowa Business Corporation Act.

ARTICLE IV

CAPTIAL STOCK

Section 1.          Shares, Classes and Series Authorized.The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is eighteen million five hundred thousand (18,500,000) shares, of which three million (3,000,000) shares shall be preferred stock, par value one cent ($.01) per share (the “Preferred Stock”), and fifteen million five hundred thousand (15,500,000) shares shall be common stock, par value one cent ($.01) per share (the “Common Stock”).  The Preferred Stock and Common Stock are sometimes hereinafter collectively referred to as the “Capital Stock.”

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Section 2.          Designations, Powers, Preferences, Rights, Qualifications, Limitations and Restrictions Relating to the Capital Stock.The following to a statement of the designations, powers, preferences and rights in respect of the classes of the Capital Stock, and the qualifications, limitations or restrictions thereof, and of the authority with respect thereto expressly vested in the Board of Directors of the Corporation (the “Board of Directors”):

(a)           Preferred Stock.          The Preferred Stock may be Issued from time to time in one or more series, the number of shares and any designation of each series and the powers, preferences and rights of the shares of each series, and the qualifications, limitations or restrictions thereof, to be as stated and expressed in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors, subject to the limitations prescribed by law.  The Board of Directors in any such resolution or resolutions is expressly authorized to state for each such series:

(i)           the voting powers, if any, of the holders of stock of such series in addition

to any voting rights affirmatively required by law;

(ii)           the rights of shareholders in respect of dividends, including, without limitation, the rate or rates per annum and the time or times at which (or the formula or other method pursuant to which such rate or rates and such time or times may be determined) and conditions upon which the holders of stock of such series shall be entitled to receive dividends and other distributions; and whether any such dividends shall be cumulative or non-cumulative and, if cumulative, the terms upon which such dividends shall be cumulative;

(iii)           whether the stock of each such series shall be redeemable by the Corporation at the option of the Corporation or the holder thereof, and, If redeemable, the terms and conditions upon which the stock of such series may be redeemed;

(iv)           the amount payable and the rights or preferences to which the holders of the stock of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

(v)           the terms, if any, upon which shares of stock of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or of any other series of the same or any other class or classes, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and

(vi)           any other designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restriction thereof, so far as they are not inconsistent with the provisions of these Articles of Incorporation and to the full extent now or hereafter permitted by the laws of the State of Iowa.

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All shares of the Preferred Stock of any one series shall be identical to each other in all respects, except that shares of any one series issued at different times may differ or as to the dates from which dividends thereon, if cumulative, shall be cumulative.

Subject to any limitations or restrictions stated in the resolution or resolutions of the Board of Directors originally fixing the number of shares constituting a series, the Board of Directors may by resolution or resolutions likewise adopted increase: (but not above the total number of authorized shares of that class) or decrease (but not below the number of shares of the series then outstanding) the number of shares of the series subsequent to the issue of shares of that series; and in case the number of shares of any series shall be so decreased, the shares constituting the decrease shall resume that stature that they had prior to the adoption of the resolution originally fixing the number of shares constituting such series.

(b)           Common Stock.   All shares of Common Stock shall be identical to each other in every respect.  The shares of Common Stock shall entitle the holders thereof to one vote for each share on all matters on which shareholders have the right to vote.  The holders of Common Stock shall not be permitted to cumulate their votes for the election of directors.

Subject to the preferences, privileges and powers with respect to each class or series of Capital Stock having any priority over the Common Stock, and the qualifications, limitations or restrictions thereof, the holders of the Common Stock shall have and posses all rights pertaining to the Capital Stock.

No holder of shares of Common Stock shall be entitled as such, as a matter of preemptive right, to subscribe for, purchase or otherwise acquire any part of any new or additional issue of stock of any class or series whatsoever of the Corporation, or of securities convertible into stock of any class or series whatsoever of the Corporation, or of any warrants or other instruments evidencing rights or options to subscribe for, purchase or otherwise acquire such stock or securities, whether now or hereafter authorized or whether issued for cash or other consideration or by way of dividend.

ARTICLE V

LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK

Section 1.          Applicability of Article.The provisions of this Article V shall become effective upon (i) the consummation of the conversion of North Central Bancshares, M.H.C., a mutual holding company organized under the laws of the United States (“MHC”), from a mutual to a stock holding company, and (ii) the concurrent acquisition by the Corporation of all of the outstanding capital stock of First Federal Savings Bank of Fort Dodge, FSB (the “Bank”) (the “Effective Date”).  All terms used in this Article V and not otherwise defined herein shall have the meanings ascribed to such terms in Section 3 of Article VIII, below.

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Section 2.          Prohibitions Relating to Beneficial Ownership of Voting Stock.No Person (other than the Corporation, any Subsidiary, or any pension, profit-sharing, stock bonus or other compensation plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the Corporation is a member for the benefit of the employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan) shall directly or indirectly acquire or hold the beneficial ownership of more than ten percent (10%) of the issued and outstanding Voting Stock of the Corporation.  Any Person so prohibited who directly or indirectly acquires or holds the beneficial ownership of more than ten percent (10%) of the issued and outstanding Voting Stock in violation of this Section 2 shall be subject to the provisions of Sections 3 and 4 of this Article V, below.  The Corporation is authorized to refuse to recognize a transfer or attempted transfer, of any Voting Stock to any Person who beneficially owns, or who the Corporation believes would become by virtue of such transfer the beneficial owner of, more than ten percent (10%) of the Voting Stock.

Section 3.          Excess Shares.  If, notwithstanding the foregoing prohibition, a Person shall, voluntarily or involuntarily, become or attempt to become the purported beneficial owner (the “Purported Owner”) of shares of Voting Stock in excess of ten percent (10%) of the Issued and outstanding shares of Voting Stock, the number of shares in excess of ten percent (10%) shall be deemed to be “Excess Shares,” and shall be entitled to cast one hundredth (1 /100) of one vote per share for each Excess Share.

The restrictions set forth in this Article V shall be noted conspicuously on all certificates evidencing ownership of Voting Stock.

Section 4.          Powers of the Board of Directors.

(a)           The Board of Directors may, to the extent permitted by law, from time to time establish, modify, amend or rescind, by Bylaw or otherwise, regulations and procedures not inconsistent with the express provisions of this Article V for the orderly application, administration and implementation of the provisions of this Article V.  Such procedures and regulations shall be kept on file with the Secretary of the Corporation and with the Transfer Agent, shall be made available for inspection by the public and, upon request, shall be mailed, to any holder of Voting Stock of the Corporation.

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(b)           When it appears that a particular Person has become a Purported Owner of Excess Shares in violation of Section 2 of this Article V, or of the rules and regulations of the Board of Directors with respect to this Article V, and that the provisions of this Article V require application, interpretation, or construction, then a majority of the directors of the Corporation shall have the power and duty to interpret all of the terms and provisions of this Article V, and to determine on the basis of information known to them after reasonable inquiry all facts necessary to ascertain compliance with this Article V, including, without limitation, (i) the number of shares of Voting Stock beneficially owned by any Person or Purported Owner, (ii) whether a Person or Purported Owner is an Affiliate or Associate of, or is acting in concert with, any other Person or Purported Owner, (iii) whether a Person or Purported Owner has an agreement, arrangement, or understanding with any other Person or Purported Owner as to the voting or disposition of any shares of the Voting Stock, (iv) the application of any other definition or operative provision of this Article V to the given facts, or (v) any other matter relating to the applicability or effect of this Article V.

The Board of Directors shall have the right to demand that any Person who is reasonably believed to be Purported Owner of Excess Shares (or who holds of record Voting Stock beneficially owned by any Person reasonably believed to be a Purported Owner in excess of such limit) supply the Corporation with complete information as to (i) the record owner(s) of all shares of Voting Stock beneficially owned by such Person or Purported Owner, and (ii) any other factual matter relating to the applicability or effect of this Article V as may reasonably be requested of such Person or Purported Owner.

Any applications, interpretations, constructions or any other determinations made by the Board of Directors pursuant to this Article V; in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its shareholders and neither the Corporation nor any of its shareholders shall have the right to challenge any such construction, application, or determination.

Section 5.          Severability.  In the event any provision (or portion thereof) of this Article V shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Article V shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken here from or otherwise rendered inapplicable, it being the intent of this Corporation and its shareholders that each such remaining provision (or portion thereof) of this Article V remain, to the fullest extent permitted by law, applicable and enforceable as to all shareholders, including Purported Owners, if any, notwithstanding any such finding.

Section 6.          Exclusions.  This Article V shall not apply to (a) any offer or sale with a view towards public resale made exclusively by the Corporation to any underwriter or underwriters acting on behalf of the Corporation, or to the selling group acting on such underwriter’s or underwriters’ behalf, in connection with a public offering of the Common Stock; or (b) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction or reorganization that does not have the effect, directly or indirectly, of changing the beneficial ownership interests of the Corporation’s shareholders, other than pursuant to the exercise of any dissenters’ appraisal rights, except as a result of immaterial changes due to fractional share adjustments, which changes do not exceed, in the aggregate, one percent (1%) of the issued and outstanding shares of such class of equity or convertible securities.

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ARTICLE VI

BOARD OF DIRECTORS

Section 1.          Number of Directors.The initial number of directors of the Corporation shall be six.  By amendments to the Bylaws, the Board of Directors may increase or decrease by thirty (30) percent or less the number of directors last approved by the shareholders.  Only the shareholders may increase or decrease by more than thirty (30) percent the number of directors last approved by the shareholders.  Notwithstanding Article XI, any shareholder vote to increase or decrease the number of directors will requite the affirmative vote of not less than eighty percent (80%) of the total number of votes eligible to be cost by the holders of all of outstanding shares of Capital Stock entitled to vote thereon.

Section 2.          Classification of Board.  Subject to the rights of any holders of any series of Preferred Stock that may be issued by the Corporation pursuant to a resolution or resolutions of the Board of Directors providing for such issuance, the directors of the Corporation shall be divided into three classes with respect to term of office, each class to contain, as near as may be possible, one-third of the entire number of the Board, with the terms of office of one class expiring each successive year.  One class of directors shall be initially elected for a term expiring at the annual meeting of shareholder to be held in 1996, another class shall be initially elected for a term expiring at the annual meeting of shareholders to be held in 1997, and another class shall be initially elected for a term expiring at the annual meeting of shareholder to be held in 1998.  At each annual meeting of shareholders, the successors to the class of directors (other than directors elected by holders of shares of one or more series of Preferred Stock) whose term expires at that time shall be elected by the shareholders to serve until the annual meeting of shareholders held three years next following and until their successors shall be elected and qualified.

In the event of any intervening changes in the authorized number of directors (other than directors elected by holders of shares of one or more series of Preferred Stock), the Board of Directors shall designate the class or classes to which the increases or decreases in directorships shall be apportioned and may designate one or more directorships as directorships of another class in order more nearly achieve equality of number of directors among the classes; provided, however, that no such apportionment or redesignation shall shorten the term of any incumbent director.

Unless and to the extent that the Bylaws so provide, elections of directors need not be by written ballot.

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Section 3.          Vacancies.  Subject to the limitations prescribed by law and these Articles of Incorporation, all vacancies in the office of director, including vacancies created by newly created directorships resulting from an increase in the number of directors (subject to the provisions of Article VI, Section 5 hereof relating to directors elected by holders of one or more series at Preferred Stock), shall be filled only by a vote of a majority of the directors then holding office, whether of not a quorum, and any director so elected shall serve for the remainder of the full term, or the class of directors in which new directorship was created or the vacancy occurred and until his successor shall be elected and qualified.

Section 4.          Removal of Directors.Any or all of the directors (subject to the provisions of Article VI, Section 5 hereof relating to directors elected by holders of shares of one or more series of Preferred Stock may be removed at any time, but only for cause and any such removal shall require the vote, in addition to any rule required by law, of not less than eighty percent (80%) of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote generally in the election of directors at a meeting of shareholders expressly called for that purpose.  For purposes of this Section 4, conduct worthy of removal for “cause” shall include (a) conduct as a director of the Corporation or any Subsidiary of the Corporation, which conduct involves willful material misconduct or breath of fiduciary duty involving personal pecuniary gain or gross negligence in the performance of duties, (b) conduct, whether or not as a director of the Corporation or a Subsidiary of the Corporation, which conduct involves dishonesty or breach of fiduciary duty and is punishable by imprisonment for a term exceeding one year under state or federal law or (c) removal of such person from the Board of Directors of the Bank, if such person is so serving, in accordance with the Federal Stock Charter and Bylaws of the Bank.

Section 5.          Directors Elected by Preferred Shareholders.  Notwithstanding anything set forth in these Articles of Incorporation to the contrary, the qualifications, term of office and provisions governing vacancies, removal and other matters pertaining to directors elected by holders of one or more series of Preferred Stock shall be as set forth in a resolution or resolutions adopted by the Board of Directors setting forth the designations, preferences and rights relating to any such series of Preferred Stock pursuant to Article IV, Section 2 hereof.

Section 6.          Evaluation of Acquisition Proposals.  The Board of Directors of the Corporation, when evaluating any offer to the Corporation or to the shareholders of the Corporation from another party to (a) purchase for cash, or exchange any securities or property for, any outstanding equity securities of the Corporation, (b) merge or consolidate the Corporation with another corporation or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, shall, in connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its shareholders, give due consideration to the extent permitted by law not only to the price or other consideration being offered, but also to all other relevant factors including, without limitation, the long-term as well as the short-term interests of the Corporation and its shareholders, including the possibility that those interests may be best served by the continued independence of the Corporation which includes the financial and managerial resources and future prospects of the other party, the possible effects on the business of the Corporation and its subsidiaries and on the employees, customers, suppliers and creditors of the Corporation and its Subsidiaries and the effects on the communities in which the Corporation’s and its Subsidiaries’ facilities are located.

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Section 7.          Power to Call Special Meeting of Shareholders.  Special meetings of shareholders, for any purpose, may be called at any time only by resolution of at least three-fourths of the entire Board of Directors of the Corporation, by the Chairman of the Board, by the President or as provided by the Iowa Business Corporation Act.  At a special meeting, no business shall be transacted and no corporation action shall be taken other than that stated in the notice of the meeting prescribed by the Bylaws of the Corporation.

ARTICLE VII

ACTION BY SHAREHOLDERS WITHOUT A MEETING

Shareholders may not authorize any corporate action or consent to any action except at a special or annual meeting of shareholders.  Shareholders are expressly denied any right they may otherwise have to act by written consent without a meeting pursuant to Section 704 of the Iowa Business Corporation Act.

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ARTICLE VIII

CERTAIN BUISINESS COMBINATIONS

Section 1.          Higher Vote Required for Certain Business Combinations.  In addition to any affirmative vote required by law, by these Articles of Incorporation, or by the provisions of any series of Preferred Stock that may at the time be outstanding, and except as otherwise expressly provided for in Section 2 of this Article VIII, any Business Combination, as hereinafter defined, shall require the affirmative vote of not less than eighty percent (80%) of the total number of votes eligible to be cast by the holders of all outstanding shares of Voting Stock, voting together as a single class (it being understood that for purposes of this Article VIII each share of the Voting Stock shall have the number of votes granted to it pursuant to Article IV and Article V of these Articles of Incorporation or in any resolution or resolutions of the Board of Directors for issuance of shares of Preferred Stock), together with the affirmative vote of at least fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock not beneficially owned together as a single class.  Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise.

Section 2.          When a Higher Vote is Not Required.  The provisions of Section 1 of this Article VIII shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law or any other provision of these Articles of Incorporation, if the Business Combination shall have been approved by a majority of the Disinterested Directors then in office or if all of the conditions specified in the following subsections (a) through (g) are met:

(a)          The aggregate amount of the cash and the Fair Market Value to of the Consummation Date of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following:

(i)           (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, soliciting dealers’ fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys’ fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it (A) within the two year period immediately prior to the Announcement Date, or (B) in the transaction in which it became an Interested Shareholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Citibank, N. A. (or other major bank headquartered in New York City selected by a majority of the Disinterested Directors then in office) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid and the Fair Market Value of any dividends paid, other than in cash, per share of Common Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of Common Stock; or

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(ii)          the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher.

(b)          The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of consideration other than cash to be received per share by holders of shares of any class of series of outstanding Voting Stock, other than Common Stock, in such Business Combination shall be at least equal to the highest of the following (such requirement being applicable to each such class or series of outstanding Voting Stock, whether or not the interested Shareholder has previously acquired any shares or such class or series of Voting Stock):

(i)           (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, soliciting dealers’ fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys’ fees) paid by the Interested Shareholder for any shares of such class or series of Voting Stock acquired by it (A) within the two year period immediately prior to the Announcement Date, or (B) in the transaction in which it became in Interested Shareholder, whichever is higher, an interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Citibank, N.A. (or other major bank headquartered in New York City selected by a majority of the Disinterested Directors then in office) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid other than in cash, per share of such class or series of Voting Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of such class or series of Voting Stock;

(ii)          (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or

(iii)         the Fair Market Value per share of such class of series of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

(c)          The consideration to be received by holders of any particular class or series of outstanding Voting Stock (including Common Stock) in such Business Combination shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such class or series of Voting Stock.  If the Interested Shareholder has paid for shares of any class or series of Voting Stock with varying forms of consideration, the form of consideration for such class or series of Voting Stock in such Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of Voting Stock previously acquired by it.

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(d)          The holders of all outstanding shares of Voting Stock not beneficially owned by the Interested Shareholder Immediately prior to the Consummation Date shall be entitled to receive in such business Combination cash or other consideration for their shares in compliance with subsections (a), (b) and (c) of this Section 2.

(e)          After the Determination Date and prior to the Consummation Date:

(i)           except as approved by a majority of the Disinterested Directors then in office, there shall have been no failure to declare and pay, or set aside for payment, at the regular date therefore any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock;

(ii)          there shall have been (A) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors then in office, and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors then in office; and

(iii)         Such Interested Shareholder shall not have become the beneficial owner of any additional shares of Voting Stock except (a) as part of the transaction that results in such Interested Shareholder becoming an interested shareholder, (b) as the result of a stock dividend paid by the Corporation or (c) upon the exercise or conversion of securities of the Corporation issued pro rate to all holders of Common Stock which are exercisable for or convertible into shares of Voting Stock.

(f)          After the Determination Date, the Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by or through the Corporation or an Affiliate of the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

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(g)         A proxy or information statement describing the proposed Business Combination in accordance with the requirements of the Securities Exchange Act of 1934, as amended, whether or not the Corporation is then subject to such requirements, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to shareholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).  The first page of such proxy or information statement shall prominently display the recommendation, if any; that a majority of the Disinterested Directors then in office may choose to make to the holders of Voting Stock regarding the proposed Business Combination.  Such proxy or information statement shall also contain, if a majority of the Disinterested Directors then in office so requests, an opinion of a reputable investment banking firm (which firm shall be engaged solely on behalf of the shareholders of the Corporation other than the Interested Shareholder and shall be selected by a majority of the Disinterested Directors then in office, furnished with all information it reasonably requests, and paid a reasonable fee for its services by the Corporation upon the Corporation’s receipt of such opinion) as to the fairness (or lack of fairness) of the terms of the proposed Business Combination from the point of view of the holders of Voting Stock other than the interested Shareholder.

Section 3.          Definitions.   For purposes of this article VIII, the following terms shall have the following meanings:

(a)          “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b 2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing by the Secretary of State of the State of Iowa of these Articles of Incorporation, whether or not the Corporation was then subject to such rule.

(b)          “Announcement Date” shall mean the date of the first public announcement of the proposal of the Business Combination.

(c)          A person shall be deemed the “beneficial owner,” or to have “beneficial ownership,” of any shares of Voting Stock that:

(i)           such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or

(ii)          such Person or any of its Affiliates or Associates, directly or indirectly, has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (but a Person shall not be deemed to be the beneficial owner of any Voting Stock solely by reason of an agreement, arrangement or understanding with the Corporation to effect a Business Combination) or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote, or to direct the vote of, pursuant to any agreement, arrangement or understanding; or

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(iii)         Is beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock; provided, however; that no director or officer of the Corporation (nor any Affiliate or Associate of any such director or officer) (y) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Voting Stock of the Corporation beneficially owned by any other such director or officer (or any Affiliate or Associate thereof) or (z) shall be deemed to beneficially own any Voting Stock of the Corporation owned by any person, profit-sharing, stock bonus or other compensation plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the corporation is a member for the benefit of employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan, not specifically allocated to such Person’s personal account.

(d) The term “Business Combination” shall mean any transaction that is referred to in any one or more of the following paragraphs (i) through (vi):

(i)           any merger or consolidation of the Corporation or any Subsidiary (other than a merger pursuant to Section 253 of the Iowa Business Corporation Act) with (A) any Interested Shareholder, or (B) any other entity (whether or not such other entity is itself an Interested Shareholder) which is, or after such merger or consideration would be, an Affiliate or Associate of any Interested Shareholder; or

(ii)          any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value equal to five percent (5%) or more of the total assets of the Corporation or the Subsidiary in question, as of the end of its most recent fiscal year ending prior to the time the determination is being made; or

(iii)         the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder other than (A) on a pro rate basis to all holders of Voting Stock, (B) in connection with the exercise or conversion of securities issued pro rate that are exercisable for, or convertible into, securities of the Corporation of any Subsidiary of the Corporation or (C) the issuance or transfer of such securities having an aggregate Fair Market Value equal to less than one percent (1%) of the aggregate Fair Market Value of all the outstanding Capital Stock; or

(iv)         the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder; or

(v)         any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of equity or convertible securities of the Corporation or any Subsidiary that is directly or indirectly owned by any Interested Shareholder or any Affiliate or Associate of any interested Shareholder, except as a result of immaterial changes due to tractional share adjustments, which changes do not exceed, in the aggregate, 1% of the issued and outstanding shares of such class or series at equity or convertible securities; or

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(vi)         the acquisition by the Corporation or a Subsidiary of any securities of an Interested Shareholder or its Affiliates or Associates.

(e)          “Consummation Date” shall mean the date of the consummation of the Business Combination.

(f)           “Determination Date” shall mean the date on which the Interested Shareholder became an Interested Shareholder.

(g)          “Disinterested Director” shall mean any member of the Board of Directors of the Corporation who is not an Affiliate or Associate of, or otherwise affiliated with, the Interested Shareholder and who either was a member of the Board of Directors prior to the Determination Date or was recommended for election by a majority of the Disinterested Directors in office at the time such director was nominated for election.

(h)          “Fair Market Value” shall mean (i) in the case of stock, the highest closing price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange listed stocks, or, if such stock is not quoted on the Composite Tape, the New York Stock Exchange, or, if such stock is not listed on such Exchange on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the Nasdaq Stock Market or any system then in use, or if no such quotation is available, the fair market value on the date in question of a share of such stock as determined in good faith by a majority of the Disinterested Directors then in office, in each case with respect to any class of stock appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Disinterested Directors then in office.

(i)           References to “highest per share price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

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(j)           “Interested Shareholder” shall mean any Person (other than the Corporation, any Subsidiary, or any pension, profit-sharing, stock bonus or other compensation plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the corporations is a member for the benefit of employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan) who or which:

(i)           is the beneficial owner of ten percent (10%) or more of the Voting Stock; or

(ii)          is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of ten percent (10%) or more of the then outstanding Voting Stock; or

(iii)         is an assignee of or has otherwise succeeded to any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by any other Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended, and not executed on any exchange or in the over-the-counter market through a registered broker or dealer.

In determining whether a Person is an Interested Shareholder pursuant to this subsection (j), the number of shares or Voting Stock deemed to be outstanding shall include shares deemed owned through application of subsection (c) of this Section 3 but shall not include any other shares of Voting Stock that may be issueable pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, warrants or options, or otherwise.

(k)          “Person” shall mean any corporation, partnership, trust, unincorporated organization or association, syndicate, any other entity or a natural person, together with any Affiliate or Associate of such person or any other person acting in concert with such person.

(l)           “Subsidiary” shall mean any corporation or entity of which a majority of any class or series of equity securities is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in subsection (j) of this Section 3, the term “Subsidiary” shall mean only a corporation or entity of which a majority of each class or series of voting securities is owned, directly or indirectly, by the Corporation.

(m)         “Voting Stock” shall mean all of the outstanding shares of Capital Stock entitled to vote generally in the election at directors.

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Section 4.          Powers of the Disinterested Directors.  When it appears that a particular Person may be an Interested Shareholder and that the provisions of the Article VIII need to be applied or interpreted, then a majority of the directors of the Corporation who would qualify as Disinterested Directors shall have the power and duty to interpret all of the terms and provisions of this Article VIII, and to determine on the basis of information known to them after reasonable inquiry of all facts necessary to ascertain compliance with this Article VIII, including, without limitation, (a) whether a Person is an Interested Shareholder, (b) the number of shares of Voting Stock beneficially owned by any Person, (c) whether a Person is an Affiliate or Associate of another, (d) the Fair Market Value of (i) the assets that are the subject of any Business Combination, (ii) the securities to be issued or transferred by the Corporation or any Subsidiary in any Business Combination, (iii) the consideration other than cash to be received by holders of shares of any class or series of Common Stock or Voting Stock other than Common Stock in any Business Combination, (iv) the outstanding Capital Stock, or (v) any other item in the Fair Market Value of which requires determination pursuant to this Article VIII, and (e) whether all of the applicable conditions set forth in Section 2 of this Article VIII have been met with respect to any Business Combination.

Any constructions, applications, or determinations made by the Board of Directors or the Disinterested Directors pursuant to this Article VIII, in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its shareholders, and neither the Corporation nor any of its shareholders shall have the right to challenge any such construction, application or determination.

Section 5.          Effect on Fiduciary Obligations of Interested Shareholders.  Nothing contained in this Article VIII shall be construed to relieve any Interested Shareholder from any fiduciary obligations imposed by law.

Section 6.          Amendment, Repeat, Etc.  Notwithstanding any other provisions of these Articles of Incorporation or the Bylaws (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the Bylaws of the Corporation), in addition to any affirmative vote required by applicable law and any voting rights granted to or held by holders of Preferred Stock, any amendment, alteration, repeat or rescission of any provision of this Article VIII must also be approved by either (i) a majority of the Disinterested Directors, or (ii) the affirmative vote of not less than eighty percent (80%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock, voting together as a single class, together with the affirmative vote of not less than fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock not beneficially owned by any Interested Shareholder or Affiliate or Associate thereof, voting together as a single class.

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ARTICLE IX

LIMITATION OF DIRECTOR LIABILITY

A director of the Corporation shall not be personally liable to the Corporation of its shareholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is expressly prohibited by Section 832 of the Iowa Business Corporation Act as the same exists or may hereafter be amended.

Any amendment, termination or repeal of this Article IX or any provisions hereof shall not adversely affect or diminish in any way any right or protection of a director of the Corporation existing with respect to any act or omission occurring prior to the time of the final adoption of such amendment, termination or repeal.

In Addition to any requirements of law or of any other provisions of these Articles of Incorporation, the affirmative vote of the holders of not less than eighty percent (80%) of the total number of votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon shall be required to amend, alter, rescind or repeal any provision of this Article IX.

ARTICLE X

INDEMNIFICATION

Section 1.          Actions, Suits or Proceedings Other than by or in the Right of the Corporation.  To the fullest extent permitted by the Iowa Business Corporation Act, the Corporation shall indemnify any person who is or was or has agreed to become a director or officer of the Corporation who was or is made a party to or is threatened to be made a party to any threatened, pending or complete action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the written request of the Corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and the Corporation may indemnify any other person who is or was or has agreed to become an employee or agent of the Corporation who was or is made a party to or is threatened to be made a party to any threatened, pending or completed action, suit or Proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the written request of the Corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorney’s fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the heat interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful.  Notwithstanding anything contained in this Article X, the Corporation shall not be obligated to indemnify any director or officer in connection with an action, suit or proceeding, or part thereof, initiated by such person against the Corporation unless such action, suit or proceeding, or part thereof, was authorized or consented to by the Board of Directors.

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Section 2.          Action or Suits by or in the Right of the Corporation.  To the fullest extent permitted by the Iowa Business Corporation Act, the Corporation shall Indemnify any person who is or was or has agreed to become a director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the written request of the Corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and the Corporation may indemnify any other person who is or was or has agreed to become an employee or agent of the Corporation who was or is made a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the written request of the Corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys’ fees) actually and reasonably incurred by him or her or on his or her behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, except no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the court shall deem proper.  Notwithstanding anything contained in this Article X, the Corporation shall not be obligated to indemnify any director or officer in connection with an action or suit, or part thereof, initiated by such person against the Corporation unless such action or suit, or part thereof, was authorized or consented to by the Board of Directors.

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Section 3.          Indemnification for Costs, Charges and Expenses of a Successful Party.  To the extent that a director, officer, employee or agent of the Corporation has been successful, on the merits or otherwise (including, without limitation, the dismissal of an action without prejudice), in defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article X, or in defense of any claim, issue or matter therein, such person shall be indemnified against all costs, charges and expenses (including attorneys’ fees) actually and reasonably incurred by such person or on such person’s behalf in connection therewith.

Section 4.          Indemnification for Expenses of a Witness.  To the extent that any person who is or was or has agreed to become a director or officer of the Corporation is made a witness to any action, suit or proceeding to which he or she is not a party by reason of the fact that he or she was, is or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, at the written request of the Corporation, such person shall be indemnified against all costs, charges and expenses actually and reasonably incurred by such person or on such person’s behalf in connection therewith.

To the extent that any person who is or was or has agreed to become an employee or agent of the Corporation is made a witness to any action, suit or proceeding to which he or she is not a party by reason of the fact that he or she was, is or has agreed to become an employee or agent of the corporation, or is or was serving or has agreed to serve as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, at the written request of the Corporation, such person may be indemnified against all costs, charges and expenses actually and reasonably incurred by such person or on such person’s behalf in connection therewith.

Section 5.          Determination of Right to Indemnification.  Any indemnification under Section 1 or 2 of this Article X (unless ordered by a court) shall be made, if at all, by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper under the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 or 2 of this Article X.  Any indemnification under Section 4 of this Article X (unless ordered by a court) shall be made, if at all, by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper under the circumstances.  At the election of the Board of Directors, such determinations shall be made (a) by a majority vote of directors, who were not parties to such action, suit or proceeding even though less than a quorum, or (b) if there are no such directors or if such directors so direct, by independent legal counsel in a written opinion, or (c) by the shareholders.  To obtain Indemnification under this Article X, any person referred to in Section 1, 2, 3 or 4 of this Article X shall submit to the Corporation a written request including therewith such documents as are reasonably available to such person and are reasonably necessary to determine whether and to what extent such person is entitled to indemnification.

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Section 6.          Advancement of Costs, Charges and Expenses.  Cost, charges and expenses (including attorneys’ fees) incurred by or on behalf of a director or officer in defending a civil or criminal action, suit or proceeding referred to in Section 1 or 2 of this Article X shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that the payment of such costs, charges ad expenses incurred by or on behalf of a director or officer in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of a written undertaking by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Corporation as authorized in this Article X or by law. No security shall be required for such undertaking and such undertaking shall be accepted without reference to the recipient’s financial ability to make repayment.  The majority of the directors who were not parties, to such action, suit or proceeding may, upon approval of such director or officer of the Corporation, authorize the Corporation’s counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.

Section 7.          Procedure for Indemnification.  Any indemnification under Section 1, 2, 3, or 4 of this Article X or advancement of costs, charges and expenses under Section 6 of this Article X shall be made promptly, and in any event within sixty (60) days (except indemnification to be determined by shareholders which will be determined at the next annual meeting of shareholders), upon the written request of the director or officer.  The right to indemnification or advancement of expenses as granted by this Article X shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition of such request is made within sixty (60) days of the request.  Such person’s costs, charges and expenses incurred in connection with successfully establishing his or her right to indemnification or advancement, to the extent successful, in any such action shall also be indemnified by the Corporation.  It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of costs, charges and expenses under Section 6 of this Article X where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Section 1 or 2 of this Article X, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its directors, its independent legal counsel and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 or 2 of this Article X, nor the fact that there has been an actual determination by the Corporation (including its Directors, its independent legal counsel and its shareholders) that the claimant has not met such applicable standard of conduct shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

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Section 8.          Settlement.  The Corporation shall not be obligated to reimburse the costs, charges and expenses of any settlement to which it has not agreed.  If in any action, suit or proceeding (including any appeal) within the scope of Section 1 or 2 of this Article X, the person to be indemnified shall have unreasonably failed to enter into a settlement thereof offered or assented to by the opposing party or parties in such action, suit or proceeding, then, notwithstanding any other provision of this Article X, the indemnification obligation of the Corporation to such a person in connection with such action, suit or proceeding, shall not exceed the total of the amount at which settlement could have been made and the expenses incurred by or on behalf of such person prior to the time such settlement could reasonably have been effected.

Section 9.          Other rights; Continuation of Right to Indemnification; Individual Contracts.  The indemnification and advancement of costs, charges and expenses provided by or granted pursuant to this Article X shall not be deemed exclusive of any other rights to which those persons seeking indemnification or advancement of costs, charges and expenses may be entitled under law (common or statutory) or any Bylaw, agreement, policy of indemnification insurance or vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in any other capacity while holding office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the legatees, heirs, distributes, executors and administrators of such person.  Nothing contained in this Article X shall be deemed to prohibit the Corporation from entering into, and the Corporation is specifically authorized to enter into, agreements with directors, officers, employees and agents providing indemnification rights and procedures different from those set forth herein.  All rights to Indemnification under this Article X shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity (or at the written request of the Corporation, in the capacity of director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise) at any time while this Article X is in affect.

Section 10.        Savings Clause.  If this Article X or any portion shall be invalidated on any ground by any court of competent jurisdiction, the Corporation shall nevertheless indemnify each director or officer, and may indemnify each employee or agent, of the Corporation as to any costs, charges, expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation), to the full extent permitted by any applicable portion of this Article X that shall not have been invalidated and to the full extent permitted by applicable law.

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Section 11.        Insurance.  The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the Corporation or who is or was serving at the written request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any costs, charges or expenses, liability or loss incurred by such person in any such capacity, or arising out of this status as such, whether or not the Corporation would have the power to indemnify such person against such costs, charges or expenses, liability or loss under the Articles of Incorporation or applicable law; provided, however, that such insurance is available on acceptable terms as determined by a vote of a majority of the Board.  To the extent that any director, officer, employee or agent is reimbursed by an insurance company under an indemnification insurance policy for any costs, charges, expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement to the fullest extent permitted by any applicable portion of this Article X, the Bylaws, any agreement, the policy of indemnification insurance or otherwise, the Corporation shall not be obligated to reimburse the person to be indemnified in connection with such proceeding.

Section 12.        Definitions.  For purposes of this Article X, the following terms shall have the following meanings:

(a)          “The Corporation” shall include any constituent corporation or entity (including any constituent of a constituent) absorbed by way of an acquisition, consolidation, merger or otherwise, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employee or agent so that any person who is or was a director, officer, employee or agent of such constituent corporation or entity, or is or was serving at the written request of such constituent corporation or entity as a director or officer of another corporation, entity, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article X with respect to the resulting or surviving corporation or entity as he would have with respect to such constituent corporation or entity if its separate existence had continued;

(b)          “Other enterprises” shall include employee benefit plans, including, but not limited to, any employee benefit plan of the Corporation;

(c)          “Director or officer” of this Corporation shall include any director, officer, partner or trustee who is or was or has agreed to serve at the written request of the Corporation as a director, officer, partner or trustee of another corporation, partnership, joint venture, trust or other enterprise;

(d)          “Serving at the written request of the Corporation” shall include any service that imposes duties on, or involves services by a director, officer, employee or agent of the Corporation with respect to an employee benefit plan, its participants or beneficiaries, including acting as a fiduciary thereof, whether or not assignment to perform such duties is indicated in writing;

(e)          “Fines” shall include any penalties and any excise or similar taxes assessed on a person with respect to an employee benefit plan;

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(f)           A person shall be deemed to have acted in “good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any, criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful,” if his or her action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him or her by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information, or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise; and

(g)          A person shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation,” as referred to in Sections 1 and 2 of this Article X, if such person acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan.

Section 13.        Subsequent Amendment and Subsequent Legislation.  Neither the amendment, termination or repeal of this Article X or of relevant provisions of the Iowa Business Corporation Act or any other applicable laws, nor the adoption of any provision of these Articles of Incorporation or the Bylaws of the Corporation or of any statue inconsistent with this Article X shall eliminate, affect or diminish in any way the rights of any director, officer, employee or agent of the Corporation to indemnification under the provisions of this Article X with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

If the Iowa Business Corporation Act is amended to expand further the Indemnification permitted to directors and officers of the Corporation, then the Corporation shall indemnify such persons to the fullest extent permitted by the Iowa Business Corporation Act, as so amended.

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ARTICLE XI

AMENDMENTS

Section 1.          Amendments of Articles of Incorporation.  In addition to any affirmative vote required by applicable law and any voting rights granted to or held by holders of Preferred Stock, any alteration, amendment, repeal or rescission (collectively, any “Change”) of any provision of these Articles of Incorporation must be approved by a majority of the directors of the Corporation then in office and by the affirmative vote of the holders of a majority (or such greater proportion as may otherwise be required pursuant to any specific provision of these Articles of Incorporation) of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon; provided, however, that if any such Change relates to Section 13 of Article X or Articles V, VI, VII, or XI of these Articles of Incorporation, such Change must also be approved either (i) by not less than a majority of the authorized number of directors and, if one or more Interested Shareholders (as defined in Article VIII hereof) exist, by not less than a majority of the Disinterested Directors (as defined in Article VIII hereof), or (ii) by the affirmative vote of the holders of not less than two-thirds of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon and, if the Change is proposed by or on behalf of an Interested Shareholder or a director who is an Affiliate or Associate (as such terms are defined in Article VIII hereof) of an Interested Shareholder, by the affirmative vote of the holders of not less than a majority of the total votes eligible to be cast by holders of all outstanding shares of Capital Stock entitled to vote thereon not beneficially owned by an Interested Shareholder or an Affiliate or Associate thereof. Subject to the foregoing, the Corporation reserves the right to amend these Articles of Incorporation from time to time in any and as many respects as may be desired and as may be lawfully contained in an original certificate of Incorporation filed at the time of making such amendment.

Except as may otherwise be provided in these Articles of Incorporation, the Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in these Articles of Incorporation, and to add or insert herein any other provisions authorized by the laws of the State of Iowa at the time in force, in the manner now or hereafter prescribed by law, and all the rights, preferences and privileges of any nature conferred upon shareholders, directors or any other persons whomsoever by and pursuant to these Articles of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Section 1.

Section 2.          Amendment Bylaws.  In furtherance and not in limitation of the powers conferred by statue, the Board of Directors of the Corporation is expressly authorized to make, alter, amend, rescind or repeal from time to time any of the Bylaws of the Corporation in accordance with the terms thereof; provided, however, that any Bylaw made by the Board may be altered, amended, rescinded, or repealed in accordance with the terms thereof by the holders of shares of Capital Stock entitled to vote thereon at any annual meeting or at any special meeting called for that purpose. Notwithstanding the foregoing, any provision of the Bylaws that contains a supermajority voting requirement shall only be altered, amended, rescinded, or repealed by a vote of the Board or holders of shares in Capital Stock entitled to vote thereon that is not less than the supermajority specified in such provision.

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ARTICLE XII

INCORPORATOR

The name and mailing address of the incorporator of this Corporation is:

First Federal Savings Bank of Fort Dodge, FSB

825 Central Avenue

P.O. Box 1237

Fort Dodge, Iowa 50501-1237

First Federal Savings Bank of Fort Dodge, FSB caused these Articles of Incorporation to be signed by David M. Bradley, President of First Federal Savings Bank of Fort Dodge, FSB this 4th day of December, 1995.

FIRST FEDERAL SAVINGS BANK OF FORT DODGE, FSB
By:	/s/ David M. Bradley
	David M. Bradley
	President

25

EX-31.1

Exhibit 31.1

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David M. Bradley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of North Central Bancshares, Inc., (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 12, 2009	/s/ David M. Bradley
	David M. Bradley
	Chairman, President & CEO

EX-31.2

Exhibit 31.2

CERTIFICATIONS

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kyle C. Cook, certify that:

1. I have reviewed this quarterly report on Form 10-Q of North Central Bancshares, Inc., (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: August 12, 2009	/s/ Kyle C. Cook
	Kyle C. Cook
	Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of North Central Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David M. Bradley, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

August 12, 2009	/s/ David M. Bradley
Dated	David M. Bradley
	Chairman, President & CEO

EX-32.2

Exhibit 32.2

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of North Central Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kyle C. Cook, Chief Financial Officer and Treasurer of the Company, certify pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

August 12, 2009	/s/ Kyle C. Cook
Dated	Kyle C. Cook
	Chief Financial Officer and Treasurer